[Senate Hearing 112-653]
[From the U.S. Government Printing Office]
S. Hrg. 112-653
ECONOMIC STATECRAFT: INCREASING AMERICAN JOBS THROUGH GREATER U.S.-
AFRICA TRADE AND INVESTMENT (S. 2215, THE INCREASING AMERICAN JOBS
THROUGH GREATER EXPORTS TO AFRICA ACT OF 2012)
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HEARING
BEFORE THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JULY 25, 2012
__________
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COMMITTEE ON FOREIGN RELATIONS
JOHN F. KERRY, Massachusetts, Chairman
BARBARA BOXER, California RICHARD G. LUGAR, Indiana
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
ROBERT P. CASEY, Jr., Pennsylvania MARCO RUBIO, Florida
JIM WEBB, Virginia JAMES M. INHOFE, Oklahoma
JEANNE SHAHEEN, New Hampshire JIM DeMINT, South Carolina
CHRISTOPHER A. COONS, Delaware JOHNNY ISAKSON, Georgia
RICHARD J. DURBIN, Illinois JOHN BARRASSO, Wyoming
TOM UDALL, New Mexico MIKE LEE, Utah
William C. Danvers, Staff Director
Kenneth A. Myers, Jr., Republican Staff Director
(ii)
?
C O N T E N T S
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Page
Coons, Hon. Christopher A., U.S. Senator from Delaware, opening
statement...................................................... 1
Eisner, Scott, vice president, African Affairs and International
Operations, U.S. Chamber of Commerce, Washington, DC........... 43
Prepared statement........................................... 46
Hayes, Stephen, president and CEO, the Corporate Council on
Africa, Washington, DC......................................... 39
Prepared statement........................................... 40
Hochberg, Hon. Fred, Chairman and President, Export-Import Bank,
Washington, DC................................................. 4
Prepared statement........................................... 6
Isakson, Hon. Johnny, U.S. Senator from Georgia, opening
statement...................................................... 3
Kimenyi, Mwangi, senior fellow and director, Africa Growth
Initiative, Brookings Institution, Washington, DC.............. 31
Prepared statement........................................... 32
Supporting charts and graphs submitted as an attachment to
prepared statement......................................... 58
Littlefield, Hon. Elizabeth, President and CEO, Overseas Private
Investment Corporation, Washington, DC......................... 13
Prepared statement........................................... 15
Charts submitted as an attachment to prepared statement...... 56
Responses to questions submitted for the record by Senator
James M. Inhofe............................................ 62
Sanchez, Hon. Francisco, Under Secretary of International Trade,
U.S. Department of Commerce, Washington, DC.................... 9
Prepared statement........................................... 10
Responses to questions submitted for the record by Senator
James M. Inhofe............................................ 60
(iii)
ECONOMIC STATECRAFT: INCREASING AMERICAN JOBS THROUGH GREATER U.S.-
AFRICA TRADE AND INVESTMENT (S. 2215, THE INCREASING AMERICAN JOBS
THROUGH GREATER EXPORTS TO AFRICA ACT OF 2012)
----------
WEDNESDAY, JULY 25, 2012
U.S. Senate,
Committee on Foreign Relations,
Washington, DC.
The committee met, pursuant to notice, at 3:05 p.m., in
room SD-419, Dirksen Senate Office Building, Hon. Christopher
A. Coons, presiding.
Present: Senators Coons, Durbin, Risch, and Isakson.
OPENING STATEMENT OF HON. CHRISTOPHER A. COONS,
U.S. SENATOR FROM DELAWARE
Senator Coons. I am pleased to convene today's hearing of
the Foreign Relations Committee entitled ``Economic Statecraft:
Increasing American Jobs through Greater U.S.-Africa Trade and
Investment.''
I would like to welcome our distinguished witnesses--I am
very excited about this topic--in our two panels today, as well
as thanking my partner on the Africa Subcommittee, Senator
Isakson, and Senator Durbin who I hope will be joining us
shortly, and others who may well join us today.
Before we begin, I just wanted to reflect briefly on
yesterday's passing of President John Atta Mills of Ghana.
Senator Isakson and I had the pleasure of meeting President
Mills last year, and there was no question in my mind that the
people of Ghana have lost a great leader and a dedicated public
servant. President Mills worked to promote economic growth and
strengthen democratic institutions, and his leadership and his
commitment to his people will be sorely missed.
Today's hearing is the second in a series exploring
Africa's vast economic potential and considering U.S. policy to
increase investment and trade in the region. At this hearing,
we will also consider legislation that I have joined Senator
Durbin in introducing entitled ``The Increasing American Jobs
through Exports to Africa Act,'' which aims to increase United
States exports to Africa by over 200 percent in the coming
decade.
Sub-Saharan Africa is a region of endless opportunity and
economic potential. In the past decade, it is home to 6 of the
10 fastest growing economies in the world, and that number is
projected to grow to 7 by 2015.
As I mentioned at the last hearing, trade between Africa
and the rest of the world has tripled since 2001. During this
time, U.S. exports have increased by more than 200 percent--
there is that number again--and imports have increased by more
than 250 percent, as shown in the graphic.
Despite this very positive trajectory, broadly in bilateral
trade, the United States is, in fact, losing out to competitors
in the African market in particular countries such as China
which surpassed the United States as Africa's largest trading
partner in 2009. This was the subject of a hearing we did
earlier in this Congress. Just last week, China announced it
would provide $20 billion more in loans to African governments
over the next 3 years to encourage investment in infrastructure
and agriculture which more than doubles the financial
commitment that China made to Africa in 2009.
In my view, the United States must fully capitalize on the
exponentially growing number of consumers and the promising
market potential in Africa, not only to be a more aggressive
competitor with China and others, but also because it leads to
the creation of American jobs, is good for American business
and American communities. In order to do this effectively, I
believe we need to improve coordination between the 10 key U.S.
Government agencies involved in formulating and executing on
our United States-Africa trade strategy. Those 10 are shown
here.
We must also eliminate inconsistencies in the United States
approach to increasing trade investment with Africa, such as
the recent decision by Commerce to eliminate Foreign Commercial
Service officers in one rapidly growing market to which I just
referred in Ghana. After visiting the officer posted in Accra
last year, I was disappointed to learn this post was not
renewed despite the decision by other agencies to deepen the
U.S. investment in this critical country. I understand there
are competing priorities and other markets, but that is one of
the topics I hope we will touch on today.
To explain the tools the administration has at its disposal
to increase trade and investment in Africa, we have assembled,
I think, a very strong panel representing three critical
agencies. Fred Hochberg is Chairman of the Export-Import Bank
and will describe the rapidly increasing scope of Ex-Im loans
supporting trade with sub-Saharan Africa which reached $1.4
billion in the last year. Notice the rapidly growing
partnerships there.
Next, Under Secretary of Commerce for International Trade
Francisco Sanchez will discuss the role of Commerce in
overseeing the Foreign Commercial Service and other programs
that support United States trade with Africa. I am particularly
interested in resource allocation and the number of Foreign
Commercial Service officers on the continent.
Finally, Elizabeth Littlefield, President and CEO of the
Overseas Private Investment Corporation, also known as OPIC,
will detail OPIC's work in Africa promoting growth and
investment in emerging economies. Last year OPIC had a 300-
percent increase in the value of deals that it was involved in
in sub-Saharan Africa, rounding out a tenfold increase in
OPIC's regional investment since 2001. I look forward to
hearing further how OPIC is fulfilling its development mandate
and supporting small and medium-sized enterprises in Africa.
We will then have a second panel. We may be interrupted by
at least two votes, to which Senator Isakson and I will need to
go around 4 o'clock. We will have a second panel featuring Dr.
Mwangi Kimenyi, senior fellow and director of the Africa Growth
Initiative in the Global Economy and Development Program at
Brookings; Scott Eisner, VP of African Affairs at the U.S.
Chamber of Commerce; and Stephen Hayes, president and CEO of
the Corporate Council on Africa. I am grateful for their
testimony and look forward to hearing from their insight and
expertise.
But before that, I would like to turn to my friend and
partner, Senator Isakson, for his opening comments.
Senator.
OPENING STATEMENT OF HON. JOHNNY ISAKSON,
U.S. SENATOR FROM GEORGIA
Senator Isakson. Well, thank you, Mr. Chairman, and I join
you in the condolences to the family of John Atta Mills. We did
have the pleasure last year, about a year ago as a matter of
fact, of meeting with him in the capital of Ghana, and
remarkably the accomplishments that he has contributed to that
continent and that country are somewhat remarkable. And even in
his death yesterday, the way the government transitioned and
the Vice President was sworn into the Presidency within 6 to 8
hours and they had a smooth transition of government was a real
testimony to democracy in Africa and John Mills' commitment to
that. So we will miss him greatly on the world stage. But Ghana
is a great country today in large measure because of his life
and his contribution.
And I thank you for calling this hearing today on economic
development potential in Africa. Over the last decade, we have
invested a lot of the U.S. taxpayers' money. CDC, PEPFAR, lots
of Millennium Challenge compact agreements, a lot of American
taxpayer money has gone into Africa, and it is important that
we look at the development opportunities for American business
and for trade between the African Continent and the United
States of America.
Just in my State of Georgia, the Coca Cola Company is
investing millions and millions of dollars in Africa, not just
building bottling plants and distributing its product to grow
its market share, but also investing in the continent. And
Chairman Coons and I both visited a Coca Cola water treatment
plant just out of Accra, Ghana, where they now, through their
rain initiative, have a goal of supplying over 2 million
Africans by 2015 with clean drinking and safe drinking water,
which is almost unheard of on the continent.
Yet despite the rapid growth and obvious potential of
Africa, the continent only accounts for 1 percent of United
States foreign direct investment. I sometimes hear from small
business owners who are interested in investing abroad but have
doubts about the stability of the markets and are unsure about
who to consult with in terms of the U.S. Government operations.
The Export-Import Bank, OPIC is represented today, the
Commerce Department, all offer tools that can help firms
looking to invest in Africa, that little bit of confidence they
need to make that investment. In fact, there are 12
departments, 26 agencies, and more than 60 Federal Government
offices all involved in the delivery of U.S. foreign
assistance, many of which offer opportunities to partner with
American businesses and all of which would benefit by including
input from the private sector when developing these programs
and strategies.
With that in mind, I will soon be introducing legislation
that will help improve U.S. development strategy and promote
private sector investment in the developing world by creating a
consolidated liaison function between the U.S. development
agencies and the private sector and incorporate more private
sector input into our strategy for each country receiving U.S.
development assistance.
And I look forward to today to the testimony of our guests,
and I thank them for giving their time to us today.
Thank you, Mr. Chairman.
Senator Coons. Thank you, Senator.
I would like to now turn to our witnesses, starting with
Chairman Hochberg, followed by Under Secretary Sanchez, and
then President Littlefield. If you would, Chairman Hochberg.
STATEMENT OF HON. FRED HOCHBERG, CHAIRMAN AND PRESIDENT,
EXPORT-IMPORT BANK, WASHINGTON, DC
Mr. Hochberg. Thank you. Thank you, Chairman Coons. Thank
you, Ranking Member Isakson, for having this hearing today and
learning more about what our work is in sub-Saharan Africa.
I am Fred Hochberg. I am President and Chairman of the
Export-Import Bank of the United States, and we are the
official export credit agency of the United States. Our mandate
is very clear. It is to support and create U.S. jobs by helping
to finance U.S. exports. We provide financing when the private
sector is not available or when the costs for the private
sector is noncompetitive. At other times, we level the playing
field by countering export financing that is offered by some of
the countries that you identified on the slide just earlier. We
provide loans, guarantees, and insurance. And I am proud to say
in 2011, the third record year in a row, we authorized 32.7
billion dollars' worth of financing that supported about 40
billion dollars' worth of exports and supported about 290,000
jobs across this country.
We are demand-driven. We finance transactions that meet our
criteria of reasonable assurance of repayment and our
environmental guidelines. Exporters and buyers come to us when
financing is not otherwise available. We have no limit by
country, by sector, or by exporter, and we do not provide aid.
As I mentioned, we make loans and guarantees that are repaid by
our borrowers. For our work, we collect a fee for our services
and we generate revenue for the taxpayers. This makes us
financially self-sufficient, and over the last 5 years, we have
delivered $1.9 billion in excess funds to the taxpayers of this
country.
Let me quickly talk briefly about our work in sub-Saharan
Africa. We are open for business in 43 of 49 countries in sub-
Saharan Africa, and in 2011, we financed exports to 31 of them
and we would like to do even more. I am also pleased to say
that more than 20 percent of the exports were from United
States small businesses and all of that was to the private
sector companies in sub-Saharan Africa.
Sub-Saharan Africa is a priority region for the Export-
Import Bank for two reasons. First and foremost, it is a
mandate from the U.S. Congress, but importantly, because of the
opportunities there, we are actually doing more and more
business there above and beyond the mandate.
Let me give you a brief summary of our work in the last 3
years. In fiscal year 2009, we provided 419 million dollars'
worth of loans and guarantees and insurance. In fiscal 2010, we
doubled that to more than $800 million, and in fiscal 2011,
just last year, we did $1.4 billion of loans, guarantees, and
insurance and that is an all-time record for the bank.
Let me put that in perspective. Globally we finance about 2
percent of U.S. exports. Yet, in sub-Saharan Africa, it
approaches 7 percent of all exports that go to the region are
financed by the Export-Import Bank. And this year in the first
9 months of the year, we have already topped $1.5 billion and
we still have 3 months to go.
Where do these exports come from? They come from small
businesses such as ABRO of South Bend, IN, that sells auto
parts to Nigeria, Ghana, and Zambia. They also come from large
engineering firms that provide engineering services such as
Black and Veatch, and of course, also large exporters such as
Boeing that we have guaranteed loans to Ethiopian Airlines, for
example, that purchases U.S.-made aircraft as opposed to
aircraft made by Airbus and our competitors across the pond.
And this increases both trade within Africa and to the rest of
the world.
To date, I have traveled to Africa twice during my tenure,
though I did make my first trip at the age of 15. Most
recently, last fall I was accompanied by our vice-chair, Wanda
Felton, who is right here, and we signed an MOU for 1.5 billion
dollars' worth of power authority in Nigeria to increase United
States exports of power equipment to fill the vital needs of
that sector.
Next month we will be back in Africa, this time to South
Africa and Mozambique with Secretary Clinton and, frankly,
other members of the administration, two of which are on this
panel here today.
We could not have turned in this kind of performance
without my colleagues at Commerce, State, OPIC, TDA, and
others. These joint efforts have borne fruit in sub-Saharan
Africa and the rest of the world. Let me give you two quick
examples.
GE. We helped finance 100 locomotives to Transnet in South
Africa, $126 million. That created, according to General
Electric, over 270 jobs in Pennsylvania and another 884 jobs
indirectly around the country. So in total, over 1,000 jobs
here in the United States were created by that export.
One other I should call to your attention. A company called
Planson International, a woman-owned business, a technology
company in New Gloucester, ME, got a $1.5 million financing
from us. They provided both equipment and technology to support
the elections in southern Sudan. As a result of this work,
Planson is now doing more exporting to Burundi, the Central
African Republic, the Democratic Republic of the Congo, and
Eritrea.
Let me conclude. I am very bullish on our prospects in sub-
Saharan Africa. Sub-Saharan Africa has made enormous progress
in governance and rule of law. The development work by AID,
MCC, and others have created growing markets, and now they are
increasingly ready for the commercial financing, the kind we do
at Ex-Im Bank. Our export financing enables U.S. exporters to
compete and win and add jobs here at home. Ex-Im Bank stands
ready to do its part to increase exports to sub-Saharan Africa
and therefore create jobs here in the United States.
Thank you for inviting me here today. I am happy to answer
any questions you may have.
[The prepared statement of Mr. Hochberg follows:]
Prepared Statement of Fred P. Hochberg
Thank you for your invitation to testify on work the Export-Import
Bank is doing in Africa. I will first review what the Bank is doing to
support U.S. exports to Africa. I will then speak to what the
competitive landscape looks like on that continent from our perspective
at the Bank. But let me take a moment here to thank the Senate for a
positive vote on our reauthorizing legislation. This allows us to
continue our important work of creating and preserving U.S. jobs while
countries in Africa are able to procure the resources needed to help
them grow.
BACKGROUND ON THE EXPORT-IMPORT BANK
Ex-Im Bank's mission is to sustain and create U.S. jobs by helping
to finance the export of U.S. goods and services which might otherwise
not go forward. This is different from some of the other agencies
testifying here today, which offer development assistance or have a
development mandate.
Ex-Im offers financing when commercial financing is not readily
available. We also attempt to ``level the playing field'' by offering
competitive terms so that American companies can compete based on the
quality of their goods and pricing. Consistent with the congressional
mandates set forth in our charter, we provide this financing when we
can find a ``reasonable assurance of repayment'' and the transaction
meets our environmental guidelines.
Ex-Im is busier than ever. We have met the demand caused by the
liquidity crisis and have more than doubled our authorizations since FY
2008. Last year, FY 2011, was our third record year in a row, with
authorizations reaching $32.7 billion, supporting almost 300,000 U.S.
jobs.
EX-IM AND U.S. EXPORTS TO AFRICA
The United States has vitally important economic interests in
Africa. This underscores the rationale for the new U.S. Strategy Toward
Sub-Saharan Africa. The Presidential Policy Directive focuses on four
main areas: strengthening democratic institutions; spurring economic
growth, trade and investment; advancing peace and security; and
promoting opportunity and development. As the official Export Credit
Agency of the United States, we are committed to do our part in the
area of trade exports.
Sub-Saharan Africa is a priority region because many countries have
strong prospects for long-term economic growth and improving business
conditions. These trends are expected to generate growing demand for
consumer goods and services as more people enter the middle class.
Moreover, Africa's enormous infrastructure needs will require sustained
investment in capital equipment and technology to support the
development of power generation, transportation infrastructure, and
other sectors that play to American strengths. The IMP has forecast
that 7 of the top 10 fastest growing countries are in sub-Saharan
Africa. These include Ethiopia, Mozambique, Tanzania, Democratic
Republic of the Congo, Ghana, Zambia, and Nigeria. Ex-Im Bank is
committed to helping U.S. companies compete for opportunities in these
countries.
U.S. exports to sub-Saharan Africa increased by 24 percent from $17
billion in 2010 to $21.3 billion in 2011, the second-highest percentage
increase in 20 years. This was driven by growth in several sectors
including: machinery, vehicles and parts, commodities, noncrude oil,
aircraft, and telecommunications equipment. Of the top three African
destinations for U.S. products, exports to South Africa totaled $7.3
billion, Nigeria totaled $4.0 billion and Angola $1.2 billion. These
three markets make up 65 percent of U.S. exports to sub-Saharan Africa.
Of the Bank's nine major countries we are focusing on, two--Nigeria and
South Africa--are in Africa.
Proportionately, Ex-Im supports more U.S. exports to sub-Saharan
Africa than it does to the world at large. Worldwide, Ex-Im Bank
historically covers approximately 2 percent of U.S. exports. Our
authorizations for FY 2011 in sub-Saharan Africa were a record $1.4
billion, or 6.7 percent of the U.S. exports. This is nearly double the
previous year's $812 million in authorizations. I'm proud to say that
already in FY 2012 Ex-Im Bank has set a new record authorizing export
financing totaling $1.5 billion to sub-Saharan Africa. This financing
in 9 months surpassed the previous record of $1.4 billion for all of FY
2011.
We are making every effort to increase our activity in sub-Saharan
Africa. I have asked our Vice Chair, Wanda Felton, to personally
oversee this important market. I have already made two visits to Africa
and will be visiting again in 2 weeks.
Ex-Im Bank is open in 43 sub-Saharan Africa countries--more than ever
before. This includes being open for business to undertake short-term
export transaction in 18 countries under our Short-Term Africa
Initiative, or ``STAI.'' Under the STAI,
Ex-Im Bank provides support for short-term transactions in markets
where coverage would not be available under standard cover policy. The
Connell Company of Berkeley Heights, NJ, uses the STAI program to sell
its mining industry spare parts to Sierra Leone, Madagascar, and the
Democratic Republic of the Congo. Another company, Reliable Industries
of New Orleans, LA, sells oil and gas equipment into Mauritania under
the STAI program.
BUILDING RELATIONSHIPS WITH AFRICAN INSTITUTIONS
At the end of FY 2011, Ex-Im Bank was strengthening its ties with
Nigerian banks, Angolan banks and regional banks such as the Eastern
and Southern African Trade Bank, known as the PTA. Throughout FY 2011,
Ex-Im Bank staff participated in international and national conferences
highlighting the benefits of the Bank's financing available for sub-
Saharan Africa. These included Corporate Council on Africa events: the
2011 U.S.-Africa Business Summit and the 2011 Infrastructure
Conference. In 2010, I led an Ex-Im Bank delegation to South Africa and
signed an MOU with Export Credit Insurance Corporation of South Africa
(ECIC). We are in discussion with a South African bank, on a possible
cofinancing with ECIC for the Eko Rail project in Nigeria. The intent
of the MOU is cooperation between Ex-Im Bank and ECIC to support U.S.
and South African exports to sub-Saharan Africa.
In 2011, Vice Chair Wanda Felton and I traveled to Nigeria where a
$1.5 billion MOU was signed with the Federal Ministry of Power of
Nigeria to finance the purchase of equipment and services from U.S.
suppliers as Nigeria extends electricity to consumers and businesses.
We will continue our outreach to Africa next month when I lead an Ex-Im
Bank delegation which will be participating in Secretary Clinton's
U.S.-South Africa Strategic Dialogue where the Bank has experienced
significant growth in recent years.
INTERAGENCY COOPERATION
Ex-Im Bank has been actively participating with other agencies in
the National Export Initiative. These agencies include: USTDA, OPIC,
USAID, MCC, Commerce Department, Treasury, State and NSS. Specific
areas of cooperation include:
Ex-Im Bank was actively involved in the Presidential Policy
Directive on Global Development and Partnerships for Growth
(PFG). The Bank's participation in this initiative was
instrumental in further developing our relationships with the
Ghanaian and Tanzanian Governments.
Ex-Im Bank coordinated its efforts with the U.S. Foreign
Service, U.S. and Foreign Commercial Service of the Department
of Commerce and other U.S. Government entities to encourage
economic engagement pursuant to the African Growth and
Opportunity Act (AGOA).
Vice Chair Felton joined a trade mission led by the State
Department and the Corporate Council on Africa. The mission
brought U.S. companies engaged in energy and power to five
countries: Mozambique, Tanzania, Kenya, Nigeria, and Ghana.
In FY 2011, Vice Chair Felton and business development
officers traveled to sub-Saharan Africa to participate in
trade-related events with the U.S. and Foreign Ghana and
Nigeria.
These outreach efforts have borne fruit. Ex-Im completed several
significant transactions in FY 2011, including:
Ex-Im provided an $805.6 million direct loan to South
Africa's state-owned electric power utility, Eskom, Limited.
The financing supported Eskom's purchase of engineering and
construction management services from Black & Veatch which will
be used to construct the Kusile power plant. With the support
of
Ex-Im Bank, Black & Veatch has created nearly 300 well-paying
jobs for U.S. professionals.
Our support in financing the sale of 100 GE locomotives to
Transnet in South Africa in the amount of $126 million will
directly sustain about 271 jobs at General Electric's factories
in Erie and Grove City, PA. Indirectly, the contract supports
about 884 in additional U.S. jobs from GE suppliers around the
country. Total U.S. job impact is estimated to be 1,155 as a
result of this contract.
Ex-Im provided Planson International Corporation, a small,
woman-owned tech company headquartered in New Gloucester, ME,
with a $1.5 million revolving working capital loan guarantee to
export computers and software to Sudan for use during the
historic referendum for Southern Sudan independence. Planson
also exports to Burundi, Central Africa Republic, the
Democratic Republic of the Congo, and Eritrea.
We also signed letters of intent, indicating our willingness to
finance the sale of up to $350 million of GE locomotives in connection
with the development of Ghana's West Rail Line and a $500 million water
sanitation and flood control project in Accra.
Moreover, we highlighted opportunities in Nigeria's agribusiness
and power generation sectors prominently at our Annual Conference and
worked with CCA to showcase these sectors to private sector investors
and lenders. Members of the Nigerian Cabinet including the Vice
President joined us at our annual conference to encourage more U.S.
companies to export to Nigeria.
As African countries continue to develop, transportation is
critical to their success. Since 2009 Ex-Im has financed African
airlines in countries such as Angola, Nigeria, Rwanda, Ethiopia, and
South Africa. We are helping to connect Africa to the world.
COMPETITION
One of the major problems facing Ex-Im in Africa is that the
``playing field'' is no longer level. Let me begin with China. China
not only offers tied and untied aid into African markets, but also
finances exports on terms that are not Organization for Economic
Cooperation and Development (OECD) Arrangement compliant. However,
these Chinese terms are close enough to what would be available
commercially that they do not qualify as aid. It is estimated that
between 2001 and 2010, China's Export-Import Bank financed $70 billion
into the African market, an estimated 20 percent of China Ex-Im's total
business volume.
problems with using ``arrangement-light'' procedures to match china
Although the Government of China frequently uses aid to promote its
national interests in the African region, it also finances many
projects and transactions on commercial terms. Given that the Chinese
are not party to the OECD Arrangement, oftentimes these financing
offers fall just outside of the Arrangement rules. For example, where
the maximum repayment term for OECD-regulated standard export credits
is 10 years in Africa, the Chinese Government will offer 12-year
financing. Such financing packages do not qualify as aid, and sometimes
are referred to as
``Arrangement-Light'' transactions. Ex-Im has detailed procedures both
internally and within the OECD to match ''Arrangement-Light'' offers by
the Government of China when U.S. exporters are competing for the same
projects. The intent is to counter Chinese Government financing offers
in a manner that will gain U.S. exporters market share and send a
message to the Government of China that the U.S. will come in on behalf
of its exporters when necessary. However, finding transactions that
will have the desired effect has been difficult.
CHINA'S STRATEGIC APPROACHES IN AFRICA
Over the past decade, China has ramped up its international export
finance activity in an effort to support its domestic companies as well
as increase its access to natural resources. For example, Angola has
used their national resources to guarantee loans from China. Under this
structure, the loan typically issued is for infrastructure development
and is offered on terms and conditions better than commercial banks.
The key condition is that for the loan to be issued, a Chinese company
must obtain preferential access to natural resources. In Angola's case
the natural resource was oil. Other financing from China used to obtain
natural resources of interest include bauxite (Guinea), chromium
(Zimbabwe), iron ore (Gabon) and cocoa (Ghana). In 2007, China Ex-Im
offered a $2 billion loan to Nigeria in return for preferential access
to oil blocks and offered $6 billion in infrastructure fmancing to the
Democratic Republic of the Congo in return for Chinese firms holding a
seniority stake in a copper-cobalt mining venture.
China has made a strategic decision to invest in African
infrastructure projects and in return China has access to natural
resources and new markets for their manufactured goods. Ex-Im
approaches its financing on a transaction by transaction basis,
evaluating credit worthiness but with the overall strategy of
preserving and creating U.S. jobs. China's flexibility in financing,
combined with the huge sums of money being offered to these countries,
creates a very unlevel playing field for U.S. exporters. Resource and
policy considerations make competing on these terms not viable on an
ongoing basis.
I want to close by emphasizing that we look forward to working with
members of this committee and other Members of Congress in advancing
the goal of increasing U.S. exports to sub-Saharan Africa. And while we
are fully aware of the risks, we are also very cognizant that this
fast-growing region of the world offers much promise for U.S. exporters
and the resulting jobs here in the United States.
Senator Coons. Thank you very much.
Under Secretary Sanchez.
STATEMENT OF HON. FRANCISCO SANCHEZ, UNDER SECRETARY OF
INTERNATIONAL TRADE, U.S. DEPARTMENT OF COMMERCE, WASHINGTON,
DC
Mr. Sanchez. Chairman Coons, Ranking Member Isakson,
members of the subcommittee, let me first begin by joining you,
Mr. Chairman, and the ranking member in expressing my
condolences to the people of Ghana for the loss of their great
leader, their President.
And let me say it is a pleasure to be on this panel with my
colleagues, Fred Hochberg and Elizabeth Littlefield. I thank
you for the opportunity to speak about the Department of
Commerce's work in helping U.S. businesses succeed in sub-
Saharan Africa, and I thank you both for your leadership on
this important issue.
Two years ago, President Obama launched the National Export
Initiative with an ambitious goal of doubling exports by the
end of 2014. At the Commerce Department, we are firmly
committed to this effort because whenever more American goods
and services reach more markets, it strengthens American
businesses, and stronger business means more American jobs.
As head of the International Trade Administration, I am
proud to report that in 2011 U.S. exports reached a record $2.1
trillion in total value, and these exports supported 9.7
million jobs. To continue the success of the President's export
strategy, we are emphasizing U.S. commercial engagement in
Africa. The sub-Saharan Africa region is rich with
opportunities in a number of sectors, including health care
technologies, agricultural equipment, infrastructure, power
generation, and the Commerce Department is determined to help
U.S. businesses fulfill this potential.
Allow me to highlight just three efforts.
First, we are raising awareness about the overseas
opportunities. Through the Trade Promotion Coordinating
Committee, we are engaged in the ``Doing Business in Africa''
campaign. This includes a special focus on outreach to the
African diaspora communities here in the United States, making
them aware of the Federal assistance programs that are
available to them to do business on the continent.
A second effort I would like to highlight is our commitment
to improving the business climate in Africa. We are focusing on
intellectual property concerns and helping create guidelines
for the region. The Commercial Law Development Program is
structuring regional IP guidelines and hosting workshops to
train government officials on IP protection and enforcement.
And finally, I want to highlight our export promotion work
which directly links American businesses with African buyers. I
am very proud of the work to establish the U.S. East African
Community Commercial Dialogue. It is an informal consultative
mechanism which aims to create business opportunities in key
sectors, and with trade missions scheduled this fall, we are
taking United States businesses to sub-Saharan Africa to
explore the trade and investment opportunities. In September,
Commerce will lead an aerospace trade mission, and in November,
I will lead a multisector mission to South Africa and Zambia.
We also continue to advocate on behalf of U.S. businesses,
helping them win business in Africa.
This year the Commerce Advocacy Center helped U.S.
companies sell jet engines to Kenya Airways, mobile powerplants
to Angola, and much, much more. These efforts directly support
jobs in States like California, Connecticut, Illinois, Ohio,
Delaware, and Georgia, to name a few.
And with this work, we are opening new doors of opportunity
and our Commercial Service stands ready to link American
products with buyers overseas. Entrepreneurs can call our
offices or consult our Web site and we will help them succeed
in the global marketplace. An example of this work is in
Savannah, GA, where one of our trade specialists helped Kelley
Manufacturing sell 800,000 dollars' worth of peanut harvesting
equipment to a company in Mali, and the potential to do these
kinds of transactions is there to do a lot more.
As part of this work, we will continue to collaborate with
Congress on critical trade and development issues.
I want to say that I am particularly pleased that the
Senate Finance Committee reported out an extension to renew the
third-country fabric provision of AGOA, which is set to expire
on the 30th of September. This provision can directly impact
jobs here in the United States and Africa. I want to urge the
Senate to pass this legislation as soon as possible. It is
critical to the continued survival of Africa's textile and
apparel industry, and I fear that without renewal, hundreds of
thousands of women and small businessowners in African Growth
and Opportunity Act-eligible countries will likely lose their
jobs. So I look forward to working with you on this very
important issue and on our efforts to strengthen the economic
ties between the United States and sub-Saharan Africa.
Thank you for the opportunity to be here. Thank you for
your leadership, and I look forward to your questions.
[The prepared statement of Mr. Sanchez follows:]
Prepared Statement of Francisco J. Sanchez
INTRODUCTION
Chairman Coons, Ranking Member Isakson, and members of the
subcommittee, thank you for the opportunity to speak before you today
about the Department of Commerce's work to help U.S. businesses succeed
in sub-Saharan Africa. I would also like to thank the chairman and
ranking member for their personal leadership on Africa and the
committee's work to continue to move the agenda forward in areas such
as the African Growth and Opportunity Act (AGOA).
U.S. EXPORTS LEAD TO JOBS AND OPPORTUNITIES
Two years ago, President Obama launched the National Export
Initiative with an ambitious goal of doubling U.S. exports by the end
of 2014. At the Department of Commerce, we work every day to help make
this effort a success. Whenever more American goods and services reach
more markets and more customers, it strengthens American businesses.
And stronger businesses result in more American jobs.
In 2011, U.S. exports reached $2.1 trillion in total value, an all-
time record. These exports supported 9.7 million jobs, an increase of
1.2 million compared to 2009. As these numbers demonstrate, boosting
U.S. exports is making an impact on families, businesses, and
communities.
THE PRESIDENT'S STRATEGY
On June 14, 2012, the President announced a new U.S. Strategy for
sub-Saharan Africa, which expands our efforts to increase economic
growth, trade, and investment on the continent. The new strategy
elevates our commercial relationship with sub-Saharan Africa by calling
for: an increased focus on expanding trade and investment; improving
economic governance; promoting regional integration; expanding African
capacity to effectively access and benefit from global markets; and
encouraging U.S. companies to trade with and invest in Africa.
RESTRUCTURING OF U.S. AND FOREIGN COMMERCIAL STAFF
In fulfilling the mission of the National Export Initiative, the
U.S. and Foreign Commercial Service has repositioned its resources
toward priority markets to strengthen its presence and to better meet
the growing demand for Commercial Service services. The repositioning
plan places approximately 169 officers and over 700 locally employed
staff in 72 countries worldwide--representing 94 percent of the
worldwide market for U.S. exports.
These reallocations were not made lightly and were based on a
thorough and independent review of priority markets and U.S. and
Foreign Commercial Service resources.
build up of south africa and partner posts with state department
The Commercial Service seeks to maintain a strong and balanced
strategic presence while utilizing our resources efficiently.
We have reallocated staff to priority countries, like South Africa,
and many of our country offices are now managing regionally based
clients. The Commercial Service's sub-Saharan strategy is based on
maintaining a strong and balanced strategic presence in western Africa
through our post in Nigeria, eastern Africa through our post in Kenya,
and southern Africa through our post in South Africa.
In Ghana, our current officer's term has just expired and while we
do not plan to fill the officer position, we are adding a second local
hire employee to service U.S. commercial interests. The office in Ghana
will be supervised by our Nigerian office, where we plan to fill a
vacant subordinate officer position in Lagos.
Our Partnership Post Program with the State Department, facilitated
by our posts in South Africa and Kenya, remains an important component
of our strategy and our efforts to leverage resources across the
Federal Government.
The Partnership Post Program operates in 25 countries within sub-
Saharan Africa where there is not a physical Commercial Service
presence. In these countries, State Department economic sections
provide U.S. companies with export assistance in select overseas
locations that have significant commercial potential. Assistance
includes access to Commercial Service branded services, staff training,
and linkages to Department programs such as the International Buyer
Program and the Advocacy Center. These partner posts work in close
collaboration with the neighboring Commercial Service post in their
region and with our domestic offices to provide U.S. companies with
strategies for market-entry.
THE POTENTIAL IN SUB-SAHARAN AFRICA
Sub-Saharan Africa is a region rich with emerging opportunities and
challenges for U.S. exporters, especially within a number of sectors,
including health care technologies; agricultural equipment; power
generation, renewable energy and clean technologies, and aviation.
Health Care: There is a growing need for health care equipment,
services, and materials as the region expands its private health care
infrastructure. In addition to providing care to a large population in
need, there is also a growing medical tourism market.
Agricultural Equipment: Despite rapidly growing economies and
populations, many countries in sub-Saharan Africa have considerable
untapped or underutilized agricultural potential. Opportunities exist
for U.S. exporters of equipment used for harvesting, planting,
irrigating, transporting, and storing seeds, fertilizers and other
inputs.
Power Generation/Renewable Energy/Clean Tech: The rapidly growing
economies of sub-Saharan Africa are driving demand for power. Due to
the poor state of electrical infrastructure, plans for massive
investments are occurring throughout the region. Opportunities exist in
solar, wind, hydro, biomass and clean coal generation technologies,
power transmission, and a wide range of energy efficient technologies.
Aviation: To meet the demands of rapid economic growth, airlines in
the region are upgrading and expanding, creating opportunities for
aircraft, services, and supplies. Militaries in South Africa, Nigeria,
and elsewhere are considering purchases of airlift, maritime patrol,
surveillance aircraft, and other assets primarily for peacekeeping,
humanitarian relief, antipiracy, and border patrol missions. The U.S.
Commercial Service in South Africa is organizing a USA pavilion and
other activities in support of U.S. exports at the Africa Aerospace and
Defense exhibition in Pretoria, South Africa September 18-21.
MEETING THE CHALLENGES TO DOING BUSINESS
While we are encouraged by these new market opportunities, we are
mindful of the challenges facing U.S. companies with respect to
intellectual property rights protection, rule of law, corruption, and
Chinese competition. Commerce is actively engaged in projects and
initiatives to address the challenges to the business climate. For
example:
We are integrally involved in developing the ``Doing Business in
Africa'' campaign, as called for in the U.S. Strategy Toward Sub-
Saharan Africa. Commerce, through its chairmanship of the Trade
Promotion Coordinating Committee (TPCC), will be developing this
campaign with the 20 agencies that are members of the TPCC. The
campaign includes a special focus on outreach to the African diaspora
communities in the United States, making them aware of federal
assistance programs for doing business on the continent.
Additionally, we are focusing on intellectual property concerns and
helping create guidelines for the region. The Commercial Law
Development Program is structuring regional IP guidelines and hosting
workshops to train government officials on IP protection and
enforcement.
We are also taking steps to establish a U.S.-East African Community
Commercial Dialogue, as part of the administration's new U.S.-EAC trade
and investment partnership initiative. The Commercial Dialogue is an
informal consultative mechanism through which the United States and the
EAC Secretariat, will, among other activities, aim to create business
opportunities in key sectors through targeted trade and investment
promotion activities.
With trade missions scheduled in the upcoming months, we are taking
U.S. businesses to sub-Saharan Africa to learn more about potential
investment opportunities. In September, the Department will lead an
Aerospace Trade Mission, which will include participation in the Africa
Aerospace and Defense 2012 exhibition in Pretoria, South Africa. In
November, the Department will lead a multisector mission to South
Africa and Zambia.
We are advocating on behalf of U.S. companies and helping U.S.
exporters win business in Africa. So far in 2012, the Advocacy Center
has worked with U.S. companies seeking to sell jet engines to Kenya
Airways and mobile power plants to Angola, among others. The Advocacy
Center's efforts have helped U.S. companies win bids that will directly
support U.S. jobs in States like California, Connecticut, New York,
Ohio, Pennsylvania, Florida, and Texas.
LINKING U.S. BUSINESSES WITH BUYERS OVERSEAS AND
ATTRACTING INVESTMENT BACK HOME
To help American businesses make the most of these opportunities,
our Commercial Service staff stands ready to link American goods and
services with buyers overseas.
Our talented workforce has in-depth knowledge about the export
process, markets, and sectors. Entrepreneurs can call our offices, or
consult our Web site, and we'll help them succeed in the global
marketplace. For example, our office in Savannah, GA, helped the
Georgia-based Kelley Manufacturing Company sell $800,000 worth of
peanut harvesting equipment to a company in Mali. Our Chicago, IL,
office's counseling of Chicago-based Lanco Trading & Investment Company
led to the company finding three buyers in Nigeria totaling $204,000
worth of sales.
CONCLUSION
In closing, the Commerce Department and the administration are
committed to working with our partners in sub-Saharan Africa and to
helping U.S. businesses to increase exports to sub-Saharan Africa. This
commitment is evident at the highest levels. Deputy National Security
Adviser Michael Froman and Assistant Secretary of Commerce for Market
Access and Compliance Michael Camunez just returned from a trip to
Africa, and earlier today I came from the Trade Promotion Coordinating
Committee meeting where Africa was one of the items on the agenda. It
is apparent that there are many opportunities for us to work together
on trade and development issues.
But I would be remiss if I didn't mention one seemingly technical
issue--the third-country fabric provision of the African Growth and
Opportunity Act (AGOA) which could directly impact jobs here in the
U.S. and Africa.
I am pleased the Senate Finance Committee reported out an extension
to renew the third-country fabric provision of AGOA, which expires on
September 30. I urge the Senate to pass this legislation soon. The
third-country fabric provision is critical to the continued survival of
Africa's textile and apparel industry. Without renewal, hundreds of
thousands of women and small business owners in AGOA-eligible countries
will likely lose their jobs.
I look forward to working with the members of this committee to
strengthen the economic ties between the United States and sub-Saharan
Africa, as well as to help American businesses succeed in sub-Saharan
Africa, both today and for years to come.
Senator Coons. Thank you, Mr. Under Secretary. I have been
grateful for Chairman Baucus' engagement and leadership on AGOA
and for Senator Isakson's tireless advocacy on it. This is an
issue that has had broad bipartisan, bicameral support, and we
are hopeful that we can clear our last hurdle here in the
coming week. We have both had some focused conversations about
the remaining challenge. So I appreciate your raising that in a
focused and relevant way today.
Ms. Littlefield, if you would like to close off the opening
statements of the panel. Then we will turn to questions.
STATEMENT OF HON. ELIZABETH LITTLEFIELD, PRESIDENT AND CEO,
OVERSEAS PRIVATE INVESTMENT CORPORATION, WASHINGTON, DC
Ms. Littlefield. Thank you very much. So thank you,
Chairman Coons, Ranking Member Isakson, and members of the
subcommittee. Thank you also for your leadership and for giving
me the chance to address the subcommittee here today on such an
important topic and frankly one that is very near and dear to
my heart. My name is Elizabeth Littlefield and I am the
President and CEO of the Overseas Private Investment
Corporation.
OPIC is the U.S. Government's development finance
institution. We mobilize U.S. private capital for sustainable
economic development in emerging markets, and doing so advances
our national security interests, on the one hand, and
intangibly projects American values, standards, and good will
in key countries across the globe. At the same time, OPIC helps
U.S. businesses access dynamic, new growing markets, boosting
growth and creating jobs both at home and abroad.
OPIC catalyzes these investments by making long-term
financing available in difficult and unproven markets like
Afghanistan and South Sudan where no other financing is
available and by providing insurance that reduces the risk of
investing in those kind of markets. Because we operate on a
fully commercial basis in a self-sustaining way, OPIC generates
income every year for the budget.
Now, before I move into the specifics of OPIC's work in 40
different countries in Africa, let me briefly just update you
on the agency's recent work, much of which was accomplished
through collaborations with sister agencies such as the
gentlemen I have on my right and my left, as well as, perhaps
even more so, with the State Department and USAID.
We, like Africa, have a pretty great story to tell. Four
quick highlights.
With the dedicated staff of only 224 people and an
allotment of $55 million in administrative expenses, OPIC
generated over $3 billion in long-term projects last year, as
well as $269 million for the taxpayer. That comes to about $2
billion we have generated for the taxpayer through our work
over the last 5 years.
Efforts to focus on the poorest countries of the world paid
off last year. We were very proud to have seen our volumes in
low-income countries, most of them in Africa, rise to over 50
percent of our portfolio, up from 15 percent the previous year.
Three-quarters of our business by both volume and transaction
number is with small businesses in the United States.
And then finally, in the renewable resources space, we
tripled our commitments to $1.1 billion. The amount of
renewable megawatts to be generated by OPIC's financing grew
tenfold in 1 year, last year.
So I, frankly, could not be more proud than to work with
such a highly talented and professional staff and no more
honored to lead this nimble and effective organization.
So turning to Africa, I personally believe that Africa is
the most promising frontier market in the world today. The four
pillars of the President's new directive and the congressional
focus on Africa that S. 2215 represents are perfectly timed to
coincide with several powerful and exciting forces that are
shaping the continent today such as a rapidly growing middle
class that has more and more disposable income, such as a
reversal of the brain drain, as well as a number of other
factors like improving business climates in governments
throughout Africa, including what President Mills had worked so
hard to achieve over the last 10 years or so.
Speaking personally, I have a personal commitment to Africa
having lived and worked on the continent since the late 1980s
where I spent a year living in West Africa setting up
microfinance institutions throughout the region--West and
Central Africa--from Mauritania to Mali to Rwanda and Burundi.
In the last 2 years, OPIC has made a concerted effort to
build our business in Africa, and last year we were very proud,
as Senator Coons mentioned, that a full third of our global
portfolio were in sub-Saharan Africa, more than any other
region, and a threefold increase over the year before. Our
current portfolio in the region totals $3 billion across 105
different, very long-term development projects.
Looking ahead, as Senator Isakson mentioned, we see that
U.S. firms remain sorely underrepresented in the region
compared to our competitors, but we are seeing a growing
interest from U.S. companies in the continent and I would be
happy to talk more about just how that interest manifests
itself as expressed in the questions that will follow.
Before closing, I would like to offer you just three quick
examples.
In Kenya, Ormat Technologies, a Nevada-based company, is
using OPIC financing to double the generating capacity of a
geothermal powerplant in Kenya, providing clean energy and
creating jobs both in Kenya, as well as in the United States.
In Ghana, Bell Star Corporation, which is a Florida company
and an OPIC client, is rehabilitating 38 municipal water
treatment plants. This project will increase the availability
of clean water to 85 percent of the population by 2015.
And finally in Rwanda, OPIC provided financing and
insurance to the Connecticut-based Tea Importers, Inc. to
expand its tea processing facilities. The company buys tea
leaves from about 5,000 local small landholders, thereby
providing a very significant source of employment, as well as
income for that country.
In sum, OPIC's approach to investment-led development is
good for Africa, good for business, and good for the United
States taxpayer. The agency is fully set to deliver on the
President's new directive. In fact, OPIC is one of the most
effective ways to engage in development in Africa because we
operate on commercial terms with the private sector, and it is
one of the most cost efficient ways to engage in development in
Africa because we generate income for the taxpayer. Every
single, solitary dollar that we can mobilize from the private
sector for sustainable economic development in Africa is one
more dollar that we can shift toward other priorities or back
to the taxpayer. So we have a very powerful, proven track
record and look forward to continuing to use it to support this
dynamic new era for Africa.
Thank you and I welcome your questions.
[The prepared statement of Ms. Littlefield follows:]
Prepared Statement of Elizabeth L. Littlefield
Chairman Coons, Ranking Member Isakson, and distinguished members
of the subcommittee, I want to thank you for the opportunity to address
the subcommittee. I am Elizabeth Littlefield, President and CEO of the
Overseas Private Investment Corporation.
Today's hearing focuses on a subject critical to the American
foreign policy objectives of security and growth: increasing U.S.
economic engagement in sub-Saharan Africa to generate broad,
sustainable economic development. Steady and tangible progress toward
this goal is indispensible for improving Africans' standards of living,
well-being, and capacity to fulfill their own economic destinies.
Moreover, America's own economic growth and its strategic relationships
among African nations and the international community will only gain by
the success of these efforts.
As the U.S. Government's development finance institution, OPIC is
well positioned to discuss investment in Africa, the prospects for its
future, and the role of American business in helping Africa to realize
those prospects.
As President Obama has said, American development policy must use
all the tools of development--not only foreign aid but investment tools
as well. Specifically, the President's new U.S. strategy for the
subcontinent directs the administration to ``spur economic growth,
trade, and investment in sub-Saharan Africa.''
OPIC supports long-term U.S. investments in Africa through its
three basic products--political risk insurance, investment financing,
and support for carefully selected and targeted private equity funds.
Our political risk insurance, which primarily covers expropriation,
currency incontrovertibility, and political violence, reassures
investors that their assets on the ground will be protected. Our
financing, available to smaller companies as direct loans through our
Small and Medium Size Enterprise Finance Department, and to larger
companies as guaranties, mainly through our Structured Finance
Department, helps companies finance investment opportunities in Africa.
And OPIC-supported private equity funds direct capital to African
companies with the most promising potential for economic growth.
For example, OPIC is providing financing and political risk
insurance for a power plant in Togo that is helping that country evolve
from an importer of energy into an exporter--and thereby overcome an
electricity shortage that has resulted in rolling blackouts and
inhibited its economic growth.
Each application for OPIC backing is rigorously evaluated for its
development potential, its creditworthiness, the backgrounds of its
applicants, and whether it could be funded from private lenders without
OPIC's participation. (This latter consideration ensures that OPIC
neither duplicates nor crowds the efforts of the private sector.)
And yet OPIC's role in all of this comes at no net cost to U.S.
taxpayers. OPIC is fully self-sufficient, as required by law. In fact,
OPIC has helped reduce the U.S. budget deficit for 34 consecutive
years. Last year, OPIC sent $269 million back to the U.S. Treasury--and
over the past few years, we've sent more than $2 billion back.
Meanwhile, OPIC's ability to catalyze private-sector investment
continues to improve. Historically, each dollar that OPIC has invested
in emerging markets like Africa's has mobilized another $2.70 in
private sector investment. In FY 2011, OPIC recorded a threefold
increase in the amount of capital that the agency's financing
mobilized, rising to $4.4 billion.
This approach has been successful in Africa for OPIC.
Over its 40-year history, OPIC has committed more than $7.6 billion
in financing and political risk insurance to 460 projects in sub-
Saharan Africa. Those projects have delivered widespread economic
benefits to Africa's growing economies, among them:
A total of nearly 2,700 megawatts of new electrical power
across the continent;
Hundreds of thousands of new housing units, including one
project in South Africa that alone has produced nearly 111,000
new units;
The provision of hundreds of thousands of gallons of clean
water daily to African populations;
Thousands of loans and microloans for African entrepreneurs
through ongoing partnerships with American banks;
The construction of railways and port facilities, miles of
new roads and other physical infrastructure critical to the
continent's economic growth; and
The creation of thousands of new jobs, both for African and
American companies which partner in OPIC projects.
And OPIC's commitment to Africa has only grown over the course of
the last decade, in support of both Republican and Democratic
administration priorities. To illustrate, FY 2001 OPIC commitments to
projects in Africa comprised only 4 percent of the agency's total
exposure. That percentage has grown steadily to 22 percent in FY 2011.
If North Africa and the Middle East were included, the figure rises to
40 percent of OPIC's portfolio. (See charts, attached.)
OPIC's approach to investment in Africa is strategic. Because we
are an agency of only 224 employees, we make every effort to select
projects that deliver the maximum developmental and economic impact to
Africa's nascent economies. In doing so, we bring the best of American
innovation, skills and training to bear on OPIC's development projects
in Africa, as well as best business practices and the highest standards
of environmental and social performance.
Our top priorities in Africa are first, to support U.S. investment
in the energy sector, particularly the sustainable development of
Africa's considerable renewable resources; second, to facilitate
infrastructure improvements, not only traditional physical
infrastructure like roads, housing, and electric generation, but also
agricultural infrastructure like supply chains and health care
infrastructure like hospitals and clinics; and third, to expand access
to capital for African small and medium-sized enterprises (SME's) and
microenterprises.
Here are some examples of OPIC projects in each of these sectors:
In Kenya, a project that OPIC has approved will double the
generating capacity of a geothermal plant, adding 52 MW to its
existing 48 MW of capacity. This expansion will incorporate
environmentally friendly American technology, and is expected
to generate 55 new local jobs, among them 26 professional/
technical staff and 28 unskilled workers. It is also expected
to support approximately 107 U.S. jobs.
In Cameroon, an OPIC project is supplying safe drinking
water to hundreds of villages, improving health and supporting
economic growth--while also introducing U.S. forms of project
management and industrial engineering that will help the
country long after the project is completed.
Water is also the focus of an OPIC-financed desalination
plant in Algiers that supplies safe drinking water to a fourth
of the city's population--while, for the first time in Algeria,
demonstrating a successful public-private infrastructure
partnership.
In heath care, a project that OPIC has approved will use
U.S.-manufactured medical equipment and medical consultants to
develop improved health care services at up to 100 hospitals
and clinics in Ghana, a Partnership for Growth country. Many
patients will gain access to oxygen generator systems, MRI
machines, CT scanners, and ultrasound and digital image
equipment for the first time. Hospital administrators will gain
access to advanced management systems, critical care packages,
medical waste treatment plants, and mobile clinics.
An OPIC monitoring team, recently returned from Kenya,
reported on three innovative OPIC microfinance projects there.
Musoni, an entirely mobile phone-based microfinance
institution; the Kenya Women's Finance Trust, which since 1981
has revolutionized women entrepreneurs' access to credit in the
country, and Equity Bank, which receives financing from a
highly successful OPIC-supported investment fund called Helios.
These three MFIs are at the cutting edge of microfinance in
East Africa, not least for their support of the Smart Campaign
social performance principles which stand to improve MFIs'
customer focus worldwide.
And it's not only in the more stable countries such as South Africa
and Kenya where OPIC is working.
In post-conflict African states, OPIC has been moving quickly to
address humanitarian challenges with projects that offer long-term
gains.
Immediately following Liberia's civil war, OPIC has put in
place a facility with a U.S. partner bank that lends to SMEs.
Called the Liberian Enterprise Development Finance Corporation
(LEDFC), the facility focuses on businesses in the hospitality,
transportation, construction materials, employment and growth.
LEDFC has been praised highly by Liberian President Ellen
Johnson-Sirleaf. And as one loan recipient stated, ``For me, it
has been a problem of finance until LEDFC. I don't care how
much is in your head, if there is no money in your pocket and
your bank account is empty, nothing will go anywhere.''
In Rwanda, OPIC provided financing and insurance to
Connecticut-based Tea Importers, Inc., to expand their Rwandan
tea processing facilities. The company purchases tea leaves
from about 5,000 small landholders, making the facility a
critical source of employment and income in the country.
OPIC also works with nongovernmental organizations that focus on
private sector development.
A Texas faith-based NGO called Living Water International
(LWI), for example, used three OPIC loans to drill hundreds of
potable water wells in rural areas of Kenya and Ghana,
providing scores of communities with access to clean water. As
each well is drilled, LWI crews work with local stakeholders,
providing instruction on water hygiene. After the well is
completed, LWI trains stakeholders in its operation and
maintenance.
In addition to our work with the private sector and nonprofit
community, OPIC often implements its African activities with our sister
agencies in the Federal Government--including not only Ex-Im Bank and
the Department of Commerce, who are here with us today, but more
frequently the State Department, the U.S. Agency for International
Development, the Millennium Challenge Corporation, and the U.S. Trade
and Development Agency (USTDA). This makes each agency's resources go
farther, and enables us to effectively align and combine the
complementary resources of sister development agencies. As always, we
aim to make public resources go farther, spending the least amount of
public resources needed to attract the most private resources.
Let me give you an example. Last month,I was honored to join
Secretary Clinton in Rio de Janeiro for the launch of the U.S.-Africa
Clean Energy Finance initiative, an innovative approach to bring
together resources and expertise of three U.S. Government agencies--
using existing State Department funds, USTDA technical assistance, and
OPIC backing to catalyze renewable energy generation facilities, energy
efficient improvements, and facilities that support clean energy.
Looking at the larger picture, all of this economic activity has
created platforms for the growth of market-based economies across
Africa, as well as economic incentives to create a more business-
friendly environment with fair and predictable laws and regulations,
and streamlined processes for permits and licenses, among other
business climate improvements.
This evolution builds a business environment that is more welcoming
to American companies hoping to better access today's fast-growing
African markets.
In the U.S., this especially helps small businesses, many of them
diaspora-owned, which can spot niches in these emerging markets, and
who use the improved business climates and OPIC's help to better manage
risks. Small U.S. companies now account for more than three-fourths of
OPIC's transaction volume. In fact, last year, 78 percent of OPIC
projects were with U.S. small businesses.
Over time, OPIC has helped thousands of such American companies to
extend the reach of their technological advances and entrepreneurial
know-how to developing country markets, notably in Africa.
And these economic and technological interventions, in turn, have
had catalytic effects: generating thousands of startup companies in
poorer countries and hundreds of thousands of jobs both there and in
the United States.
The result is the initiation of a virtuous cycle: U.S. businesses
and their African partners both grow, strengthening local economies and
making Africa's emerging markets better markets for American companies
and investors.
Overall, the impact of OPIC's development finance on Africa speaks
volumes about the potential of our investment approach to bring about
economic growth on the continent. It also speaks to the scale of
investment opportunities that exist for American businesses in Africa.
Not least, OPIC's success backs key U.S. foreign policy goals by
supporting the spread of democracy and free markets.
Why is this happening now--what is driving Africa's growing market
potential? I see three factors:
(1) The swelling ranks of the middle class. In just the past
decade, Africa's middle class grew 60 percent to 313 million, according
to the African Development Bank. And the number of African households
with discretionary income is expected to go up by another 50 percent
over the next 10 years. We certainly should not overlook poverty in
Africa, but it's important to recognize that a significant segment of
the population now has income that can cover more than its basic needs.
As just one example, Africa now has more mobile-phone subscribers than
the U.S. has people.
(2) Untapped opportunities: Nearly 60 percent of the world's
uncultivated arable land is in Africa. And with the world's population
projected to increase to more than 9 billion by 2050, it will require
up to a 70-percent increase in agricultural production. In addition to
agricultural productivity opportunities, research shows that
agricultural growth is at least twice as effective in reducing poverty
as growth in other sectors. Agriculture in Africa is clearly a high-
potential growth sector.
(3) And as noted, African governments are doing their part by
undertaking earnest efforts to improve the investment climate and
energize markets. Across the continent we've seen leaders privatize
state-owned enterprises, liberalize trade, lower corporate taxes,
strengthen regulatory and legal systems, and invest in critical
physical and social infrastructure. In 2010, two-thirds of sub-Saharan
African nations implemented reforms to improve their business climates.
From the point of view of an investor, the most important sign of a
positive business environment is improvement, even incremental, as it
demonstrates the intent of the government to welcome business. The
World Bank's Doing Business indicators tell the story: in past 5 years,
half of the 12 countries awarded ``most improved'' are in Africa.
Against these ever-improving prospects, Africa faces equally great
investment challenges, particularly in the development of its physical
and financial infrastructure.
With nearly 1 billion people, Africa accounts for over a sixth of
the world's population, but generates only 4 percent of global
electricity.
And while the need to upgrade and expand the service provision in
areas such as electricity, telecommunications, transport, shelter,
water supply and sanitation is high, private investments have not kept
pace. This fact is particularly disappointing when one considers
Africa's vast natural resources and the potential for social
development they offer.
We believe this is where OPIC can step in and make a critical
difference by helping to bridge the still large gap between Africa's
potential and its development needs. Indeed, as an offshoot of the
Marshall Plan, OPIC was established to involve the U.S. private sector
in stepping up to precisely such daunting challenges.
We believe the OPIC record in Africa speaks for itself. If nothing
else, it speaks to the ability of private sector-led development to
yield outsized results that dwarf the commitment of U.S. Government
resources to Africa's development challenges.
The OPIC finance model is the most effective way to support
sustainable development because it deploys a private market
entrepreneurship and discipline. It is the most efficient way to
conduct development policy because it is done in a way that is not only
fully self-financing but actually generates money for the American
taxpayer and the federal budget.
With the support of Congress, we look forward to helping Africa
meet its development challenges through the vehicle of the American
private sector, which has always met every challenge before it.
[Editor's note.--The charts mentioned as an attachment to Ms.
Littlefield's prepared statement can be found at the end of
this hearing in the ``Additional Material Submitted for the
Record'' section.]
Senator Coons. Thank you, President Littlefield, and thank
you to the whole panel. I appreciate your testimony.
We are going to start a first round of 7 minutes of
questions. Then we will see. Hopefully we have time for at
least two rounds before we need to go vote.
I have three questions I would like to put to the panel, if
I might, and I will put them to individuals, but then if the
other two panel members would feel welcome to comment as well.
Under Secretary Sanchez, if you would, what steps could be
taken to improve coordination among your three agencies, Ex-Im,
OPIC, Commerce, as well as State, AID, USTDA, and others, to
ensure that we are as effective as possible in delivering
support for the United States private sector and strengthening
United States-Africa bilateral relations and in strengthening
our investment in trade relations in Africa?
Mr. Sanchez. Thank you for the question, Senator. It is
actually a very timely question because just before coming to
this hearing, I attended a meeting chaired by my boss, Acting
Secretary Rebecca Blank, of the Trade Promotion Coordinating
Committee, which is a congressionally mandated coordinating
committee of all the different agencies that play some role in
export promotion around the world. And on the agenda was: What
are we doing collectively to support our efforts in Africa?
We were directed from that committee to work together and
build on the plans that we already have. As I mentioned in my
testimony Commerce is doing outreach in the diaspora community
to bring awareness to the Federal assistance that is available.
We are doing that in a coordinated manner with SBA, with the
Minority Business Development Administration, the International
Trade Administration, and other relevant agencies.
Part of the way that we have coverage for commercial
activities is through the Partnership Post Program with the
Department of State. And so we train economic attaches in 25 of
the countries in sub-Saharan Africa where we do not have
commercial officers or locally engaged staff. We train them to
provide the commercial services that we provide in different
posts around the world.
So we are currently engaging in a number of ways, and as a
result of our meeting, they are mandated to look at other ways
that we can strengthen that collaboration.
Senator Coons. I am going to ask you a followup question,
if I could. If you had sufficient funding, in your view would
having more Foreign Commercial Service officers on the
continent in Africa significantly contribute to our
relationship and coordination, or are you perfectly satisfied
that with the training you are able to provide to in-country
State Department officers, you are accomplishing the goal?
Mr. Sanchez. Senator, the short answer is ``Yes.'' I
believe that we could adequately deploy additional resources.
The President's proposed budget for the International Trade
Administration calls for approximately 111 additional staff for
the Foreign Commercial Service. Later this year, we will be
going through an analysis, a resource allocation analysis, to
determine where we should deploy our resources. I feel very
confident in saying that additional resources could go into the
African Continent and specifically into sub-Saharan Africa.
Senator Coons. Let me turn, if I might, to a question about
transparency. President Littlefield, you spoke about how you
are very active in difficult or unproven markets, and at times
this allows us the opportunity to not just promote economic
relationships, but also to promote our values. Tell me, if you
would, whether you think investors would have greater
confidence in African countries if they developed their own
transparency standards for extractive industries, for example,
or other sectors. The United States has long had the gold
standard in our Foreign Corrupt Practices Act in terms of
obligations we put on U.S.-headquartered companies for their
operations and transparency overseas. There is a critical
component to the Dodd-Frank bill that requires more
transparency around extractive industries. Would it make a
difference if those standards were African-led and applied on
an equal basis to countries of all origins who seek to play in
Africa, or are we meeting the values goal for transparency
sufficiently as it is?
Ms. Littlefield. Well, I guess I would say, first of all,
that I think the U.S. investment that is flowing abroad has not
only a huge boost for the economy, but it has a huge boost for
providing exactly those kinds of standards that U.S. companies
bring: standards of transparency; high standards of governance;
standards also of environmental safeguards and social and labor
policies; human rights policies; which not only enable us to
project the values and the standards that the U.S. companies
embody but also create models for other companies in those
markets to emulate.
Increasingly, we have seen regulations and transparency
being adopted by African countries. Roughly 80 percent of the
countries on the continent have adopted probusiness investment
climate improvements over the last 5 or 6 years, and we are
seeing dramatic improvements in that in terms of the regulatory
and the investment environment.
So, yes, I think the African nations are taking the lead. I
think it is very important for that to continue and for us to
continue
to have United States companies supporting those reforms in
regulations.
Senator Coons. Thank you.
If I might, Chairman Hochberg, the last question. Tell me
about what sorts of impact the programs that Ex-Im is
responsible for have had on improving the business climate more
generally. You spoke a little about sort of rule of law and
transparency and procedural things. I would be interested in
what else you think--what are the greatest remaining
challenges, how they can be overcome, and then what role other
Federal agencies have in contributing to progress in the
business climate.
Mr. Hochberg. Well, thank you. You know, doing business in
Africa is still a challenge, and we would like to do even more
business than we have been doing. We could not do the work we
do in sub-Saharan Africa, frankly, without the help and
assistance of the Foreign Commercial Service. So we work
closely with them. And frankly, under Secretary Clinton and
Deputy Secretary Nides, each and every embassy has been much
more focus on the commercial aspects of their mandate, not just
the diplomatic side. So really we rely on the State Department
in terms of looking at good governance, rule of law, and those
issues in terms of improving our ability to make more loans and
increase more exports to sub-Saharan Africa.
Senator Coons. Thank you.
Any other comments from the other members of the panel?
Ms. Littlefield. May I just add one thing on the question
that you asked Under Secretary Sanchez? And that is, I would
say that the coordination is working extremely well as far as I
am concerned. I think not only are several of the agencies
represented in the interagency process on the OPIC's board and
very supportive of us in that regard, but we work extremely
closely with the Foreign Commercial Service as well, as well as
the economic officers at the State Department. They are
continually identifying tenders that U.S. companies can take
advantage of that alert us to those opportunities. They are
continually referring business to us. We have no eyes and ears
on the ground, and so it is a very, very powerful support for
us. So I would encourage continued support of that.
One last thing I would mention is remembering USAID and the
State Department, with whom we coordinate extremely closely,
most of OPIC's response to the Arab Spring could not have
happened without AID's support and without the support of the
State Department. So we coordinate very closely with them. I
think it works very well so far.
Senator Coons. And State and AID were represented at the
previous hearing we had.
Ms. Littlefield. Yes, exactly.
Senator Coons. And I agree with you. They played a central
role.
Mr. Under Secretary, and then I am going to turn it over to
Senator Isakson.
Mr. Sanchez. Mr. Chairman, just very briefly to underscore
what Chairman Hochberg said about helping develop a business
climate with our partners in sub-Saharan Africa. In addition to
export promotion, the work that the International Trade
Administration does that I believe is very important is in
working with our partners and helping them create a business
climate that will attract business. And I mentioned in my
testimony intellectual property rights protection work, which
not only helps American companies, but also helps African
entrepreneurs. In addition to that, we are helping companies
with laws and regulations that will be conducive to attracting
business. And if we can help them create that fertile ground,
it will make it easier to attract more American business in
trade and investment.
Senator Coons. Thank you.
Senator Isakson.
Senator Isakson. Well, Mr. Sanchez, thank you for your
comment about AGOA. And the chairman deserves a lot of credit
for his effort. We are trying to move it forward. We are kind
of a hostage right now to a couple of situations which
hopefully we will be released without harm. I hope that will
happen.
But it reminded me of our visit to Global Mamas in Ghana,
and the jobs that will be lost in Africa that will end up going
to China, Vietnam, and Thailand are disappointing tremendously
because we are raising the standard of living and the lives of
those people in Africa with the third-country fabric agreement
and we need to continue it. So I appreciate your support for
that.
Mr. Hochberg, what is your default rate on your loans?
Mr. Hochberg. Our default rate bankwide is below 1.5
percent.
Senator Isakson. And you do not make loans that are
convertible to equity, do you?
Mr. Hochberg. We do not.
Senator Isakson. I met with Dr. Kim, the new President of
the World Bank, as did the chairman. I have been to Africa a
number of times, and the thing I want to talk to Mr. Hochberg
and Ms. Littlefield about for a minute, which both of you are
aware of my interest I think--one of the things that really is
an encumbrance to United States investment of U.S. companies in
Africa is the corruption issue. And I had a meeting this
morning with the World Bank official whose job it is to try and
bring about an accountability of the beneficiaries of World
Bank loans and investments in terms of corruption.
I would like to hear from both of you what you do in your
financial facility to have a contingency, an accountability, or
a compliance as far as corruption is concerned because the
businesses I talk to in the United States--their No. 1 concern
is how many people you may have to pay off in either the
gubernatorial change, the transport change, the port offloading
change, wherever it might be, and that is why President Mills
deserves, by the way, so much credit because he was a stalwart
in turning Ghana around as far as that was concerned. So I
would like to hear what the Ex-Im Bank is doing, what OPIC is
doing in terms of holding Africa accountable in terms of
corruption.
Mr. Hochberg. Well, thank you for that question. In part of
our due diligence on every transaction, we are doing a
reputational risk. We run through--any transaction above $10
million is reviewed by the State Department and the Treasury
Department. So we have got a number of screens, as well as the
National Security Council, in terms of the actors that we are
doing business with. So we obviously look at that very
carefully and we investigate that. We have an independent IG.
To the extent we see any fraud or we see any misrepresentation,
we will either investigate it beforehand. If it is after a loan
is made, we will interplay the inspector general into that
work.
Senator Isakson. Do you have the ability in your paperwork
that is executed on the loans to stop funding of a loan if in
fact you discover corruption between the time that you
originated the loan and when you began distributing?
Mr. Hochberg. I do not know specifically if that is part of
the loan documentation. I will get back to you on that specific
question. There are other times when we have seen other
improprieties and we simply have stopped making payments until
we are satisfied, but I do not know whether it is specifically
enumerated in the loan documentation.
Senator Isakson. Ms. Littlefield.
Ms. Littlefield. Yes, thank you. I will just answer your
question about loan defaults as well, if I may.
Senator Isakson. Sure.
Ms. Littlefield. OPIC too, over its 40-year history, has--
less than 1.5 percent of its loans have been written off, and
less than .7 percent of insurance contracts have been written
off. So we share the same track record as Ex-Im.
Senator Isakson. It is important to note that that is
better than U.S. single family residential mortgages.
[Laughter.]
Ms. Littlefield. Indeed.
And with respect to our clearances as well, we too have a
very, very rigorous system. We have 25 databases that we submit
every single one of our projects, regardless of size, to, those
databases checking both credit and character risk due
diligence. Those databases include things like the State
Department, the Treasury, the embassies' databases, as well as
the Office of Foreign Asset Control, the Foreign Corrupt
Practices Act database, the SEC's databases. All of them are
checked for compliance with--any troublesome information that
we might find about an individual, a principal, a shareholder,
a member of a family. These are very rigorous tests. And, in
fact, frankly when you think about it, we get about 2,000
applications every year for every 100 deals that we do. So we
able to be extremely selective in the transactions that we
pursue, and we would not pursue anything that had any slight
hint of corruption in it.
I would just say one additional thing, though. We find that
our customers that have done business in Africa already become
repeat customers. They are very bullish in the continent. They
are comfortable with it. They understand how to navigate and
find the right kind of partners. The corruption issue is cited
most often amongst those corporations that have never invested
in the continent. So we think the fact that repeat business
comes back to Africa is always a good sign for anyone running a
business.
And last I would say that many of the government leaders
that I speak with, including President Mills, consistently talk
about how the corruption issue is why they appreciate working
with American businesses over Chinese businesses. And
increasingly those governments are beginning to recognize that
price is not everything, and that when American businesses
invest, they bring standards and, as we mentioned earlier,
transparency, governance, and other things along with that
investment that is very powerful for that market but does not
have a value per se, a numerical value.
Senator Isakson. Mr. Hochberg.
Mr. Hochberg. It is very handy having my general counsel in
the hearing room.
Senator Isakson. I saw you getting notes.
Mr. Hochberg. So I can respond immediately to your
question. It is a condition of default. If any corruption or
fraud is detected and there are still disbursements being made,
that is evidence of default and we stop payment at that time.
Senator Isakson. Well, I am really glad you had the answer
on such a timely basis and I commend the young lady who brought
you the answer for getting it to you.
Mr. Hochberg. And she likes being called a young lady.
Senator Isakson. It is good to have good help around. It
makes me look good too.
But the reason I asked the question is the best way to stop
bad practices is to make examples of people, and if you make an
investment that to the best of your knowledge you have done all
the due diligence you could do on a loan, but you learn after
the fact that corruption is taking place and there are active
participants, then the fact that you stopped funding the loan
or call it in default because of the corruption, that word will
travel faster than any word whatsoever. It is the best
enforcement mechanism that you have. So I am glad that you do
it. I hope OPIC will do the same thing.
And the World Bank--I talked with them this morning. They
are beginning the same type process, and I think it is going to
elevate the amount of United States investment in Africa and it
is going to elevate the plight of the African people
tremendously.
Thank you, Mr. Chairman.
Mr. Hochberg. I have also brought that to the attention of
those countries' ambassadors to the United States so that they
are aware of our issues and the fact it does taint doing
business in that country. So that has also been helpful.
Senator Isakson. Thank you very much.
Senator Coons. Thank you, Senator Isakson.
Senator Isakson and I are both aware of the recent case in
Malawi in its interaction with the MCC where they suspended
what was a several hundred million compact, and it has now
restored after a change in governance and remedial actions. I
appreciate your line of questioning.
Senator Durbin.
Senator Durbin. Thank you, Chairman Coons and my colleagues
and certainly those who are members of the panel, my old
friend, Fred Hochberg, and all of you who have joined us today.
And thank you for including my African trade bill on this
agenda. I thank the chairman for cosponsoring it and others for
joining, and I hope that it is something that can be part of
this conversation. The goal is to dramatically increase
American trade with Africa by coordinating our governmental
efforts.
I have been to Africa many times. One of my last trips to
Ethiopia with Prime Minister Meles was an eye-opener. At the
very end of a meeting, I happened to mention the word
``China,'' and he was waiting. He added 30 minutes to the
meeting to basically say to me go home to America and tell them
what is happening here. China has arrived. They have a vision
in Africa and they have a plan. They have resources and they
are engaged in virtually every country in Africa. No other
country on earth is engaged the way that they are.
And you look at the announcement of just a few days ago
from President Hu in Beijing that China was going to lend $20
billion to African governments for infrastructure and
agriculture in the next 3 years, that is not all. In his
speech, Mr. Hu said China would train 30,000 Africans, offer
18,000 scholarships, and send 1,500 doctors and other medical
personnel to Africa. They are investing in a big way in Africa.
Prime Minister Meles told me of circumstances where when
they borrowed $100 million for a project from China, they were
only expected to return $70 million in payment so long as
Chinese contractors, engineers, and a lot of Chinese workers
were there to do the work.
So I would like to ask you this in kind of reflection. We
have seen many times around the world competing with China is
difficult because they play by different rules. They have a
different allocation of resources, and they clearly have
different goals than the United States. I think we understand
that we want to stand for principles and values that reflect
who we are and what we believe the world would be better off in
following. But in many circumstances, we are finding that we
have fewer dollars to offer than China. Some may say, well, it
is a large country, and it is. And it has a lot of people and
it does. But the GDP of China is one-third of the GDP of the
United States, and yet the investments they are making all over
the world dwarf ours.
Second, the different rules that they play by. Mr.
Hochberg, you have been through this locomotive issue with
Pakistan and China. You can understand when they say buy our
locomotives and we will build your railroad and similar offers
that are being made, things that we cannot or will not do. So
they play by different rules in that regard.
And certainly they have different goals. I think clearly
there is a mercantile goal. It is a goal to establish economic
and market relationships. Ours go way beyond that in terms of
diplomacy and strategy and human rights and governance and
transparency and the like.
So I guess the question to the panel is this. Even if we
get it together, even if we coordinate better, in a time when
we are fighting a deficit, in a time when we are not going to
abandon our basic values, in a time when we are still going to
be mindful of issues like the environment and human rights,
what are our chances of truly competing effectively with China
in Africa?
Mr. Hochberg.
Mr. Hochberg. Well, thank you, Senator, and thank you for
your interest in this area.
I would say that in February President Obama and Vice
President Xi met, and as a result of that, put in motion a plan
to have some kind of new international framework for financing
exports in place by 2014. We have already had--there have been
three meetings. We have had three teams go to Beijing over the
last several months. The next meeting will be in Washington in
September. And I think there is some understanding that the way
China has been operating is simply not acceptable to have the
largest exporter of goods in the entire world, the second
largest economy, operating outside of the kind of rules and
norms that other developed countries are following.
But we are not waiting for that. You referenced the deal in
Pakistan. We stand ready and are looking for U.S. companies. If
a United States company feels it has been disadvantaged by
financing terms that China has offered, we will step forward
and find a way to offset that advantage with a loan package, as
we did for Pakistan Rail. That deal has not come through yet,
but we made sure that the American manufacturers, GE and
Caterpillar, have the same exact financing terms as the Chinese
to level that playing field.
Senator Durbin. Secretary Sanchez.
Mr. Sanchez. Thank you, Senator, and thank you for your
leadership in this part of the world and on this issue of
commercial engagement.
You laid out very eloquently the challenge we face from
China. First of all, because I do not think we will match it, I
do not believe the answer is to try to meet the Chinese dollar
for dollar. We have other competitive advantages.
But the first thing we need to do is show up, and by that I
mean our private sector needs to show up. Elizabeth Littlefield
made reference to this. Our partners in sub-Saharan Africa want
to do business with American companies in part because they
have been left very dissatisfied with a lot of the behavior of
many Chinese companies, whether it is bringing Chinese labor
instead of hiring local labor, whether it is not really having
much of a corporate social responsibility culture, or whether
it is sharing know-how. American companies do all that so much
better.
So to that end, we are engaged. We are taking trade
missions. I mentioned in my testimony that we will be doing a
trade mission in the aerospace industry in September. I will be
leading a multisector trade mission in November. I will be
joining my colleagues and Secretary of State Clinton, along
with members of the business community, in just about 10 days.
So, No. 1, we have to show up. We are beginning to do that
more locally. I made reference to the ``Doing Business in
Africa'' campaign that we are doing here in the United States.
I think it is very important that we communicate to our
business community that there are tremendous opportunities in
infrastructure and health care and agriculture. And so if we do
that, if we show up--I am not going to say it is going to be
easy because China is throwing a lot of resource at it--I think
that we can do much better than we have.
Senator Durbin. Thank you. I see my time is up. Thank you,
Mr. Chairman. Thanks to the panel.
Senator Coons. We have, I think, just a few minutes until
the 4 o'clock vote is called. So I may ask one or two more
questions, and Senator Durbin, if you have more questions for
this panel, it would be helpful to know. Then we may recess and
then when I return or when we return, call the second panel if
we could.
I would be interested--I think we have had a great
conversation about competition with China, transparency,
coordination. I would be interested in your input on
diversification and how you think we could more broadly engage
the U.S. business community, what steps you are taking to make
the U.S. business community that is potentially engaged in or
interested in exports to Africa more aware of what you do. I do
not think enough Americans know the strength and skills and
capabilities you bring to the table.
And then second, how do we diversify to a broader range of
sectors? I know you operate under some restrictions or
priorities in terms of focus on small enterprises or on
alternative energy or in other fields, disadvantaged
communities, but I would be interested in hearing how you
engage more of the United States business community and how we
diversify successfully United States exports to Africa. If you
might, Under Secretary, and then let us just go in order.
Mr. Sanchez. Thank you, Mr. Chairman.
First, we want to focus on what I will describe as low
hanging fruit--that there are sectors that can do very well
there, and that the American companies have a lot to offer. So
specifically in power generation, in traditional oil and gas,
as well as alternative energy, there are great opportunities.
So we are focusing our trade mission efforts and our
international buyer programs in sectors where we know there is
a great demand and where we have great capabilities. I would
add to that the agribusiness sector, particularly machinery and
infrastructure. And I use ``infrastructure'' in the very
broadest sense. It is not just construction management and
architectural services, but all of the support services that go
into infrastructure, which really impacts a lot of small
businesses in the United States. So No. 1 is making sure we are
matching the demand to those companies and those sectors where
we have a competitive advantage.
And second, as I mentioned earlier, making sure that we are
getting the message out to our business community, and
particularly the African diaspora business community. There are
opportunities there. There is Federal assistance to help you
take advantage of those opportunities. We are ready to do
business.
Senator Coons. Thank you.
President Littlefield.
Ms. Littlefield. I would certainly echo what Under
Secretary Sanchez said, that we need to work much harder to get
the message out, and I do think the Foreign Commercial Service
has a very important role in doing that, again in doing things
like identifying specific opportunities where tenders are being
made that U.S. companies should be made aware of. The Foreign
Commercial Service did that for us several months ago in the
case of Rwanda where solar tenders were being offered, and
three U.S. companies have come forth and we have been working
with those three U.S. companies to try to help design the power
purchase agreements in such a way that they are bankable. That
opportunity might not have arisen were it not for our
connections with the Foreign Commercial Service.
But I would say, in addition to promoting exports, we do
need to think about investment. I think we need to get the
message out that U.S. investment abroad is a huge booster for
the domestic economy. I think that is not very well known. You
may not know that 40 years ago when OPIC was created, the flows
from the United States to emerging markets were about 75-
percent overseas development assistance, and today the flows
from the United States outward are now about 80-percent FDI. So
there has been a complete switch. And that FDI, as we know, is
a very powerful booster for the domestic economy. Only 1
percent of U.S. companies invest abroad, and yet, 4.3 million
jobs have been created in the United States by overseas
investments of U.S. companies. Fifty percent of the profits and
revenues of the Standard & Poor's 500 comes from overseas
investments. For every one job that is created overseas, 2.3
are created here in this country by investments that are made
abroad. That is because when companies in the United States
invest abroad, they access these dynamic markets that are fast
growing and they need to build back at home to support those
investments.
So the link between foreign direct investment in emerging
markets, which is so powerful for development and so powerful
for projecting U.S. standards and values in those markets--the
link between that and our own domestic growth I think is
something we need to be much more explicit about. Companies get
it but we are not messaging it as a government enough I think.
Senator Coons. Chairman Hochberg.
Mr. Hochberg. Thank you.
Let me echo one thing that Under Secretary Sanchez said.
The key thing is getting more U.S. companies to show up. That
will do the best job in terms of increasing exports. It will do
the best in terms of rebutting and meeting the Chinese on many
grounds.
The second thing I would say, yesterday when we met you
told me about your conference call to Opportunity Africa where
500 companies came and you are planning to do that again in
January. That would be enormously helpful. I mean, if you can
recruit a number of your colleagues, Senator Isakson and
others, to do such a conference like that, if we could do more
of those around the country, I will commit that I will come,
and if I cannot come, our vice chair or somebody else will be
there because that is the best way to get the word out. The
convening power that you and your colleagues have would be
enormous in helping to increase exports there.
Additionally I have to say the Senate last year
appropriated an extra $6 million to our administrative budget.
It is the funds that we have earned in fees, but you have
allowed us to spend that money. That also helps. We have a
proposal in for this year as well.
And last, I would say you need to hold us accountable. We
have an annual report. On page 18 and 19, we report every year
what we have done in sub-Saharan Africa. So what is in this
report is what the management of this bank pays attention to.
So I would suggest the best way to do it is to hold a hearing
every year. Either I am here or my successor, but hold us
accountable. If we know we have to have a hearing, we know we
are going to report on the annual report, we are going to make
sure we do a good job.
Senator Coons. Thank you.
Senator Isakson.
Senator Isakson. I just want to make a comment, not to
discount what Senator Durbin said in the least about the
Chinese because I have been there and I have seen it with my
own eyes. But I think we have to understand the tremendous
appreciation there is of the investment of the United States
people in PEPFAR and the Millennium Challenge Corporation and
the tuberculosis initiative and other things like that. And
rather than an increase in spending, a loss in that investment
would hurt us a lot more than not increasing our spending. And
I think the African people are very intuitive people and
appreciate the fact that we are investing in their future.
China comes with a big dollar but they take a lot with them,
including so many of the jobs they bring in from their own
continent. So I am not diminishing them, but I think what both
the last two administrations have done in terms of investing in
the health of the African people, clean, safe drinking water,
and eradicating some of the worst diseases that are still on
the face of this earth should be recognized as a tremendous
contribution that helps American businesses have a good image
when they go in to do business.
Senator Coons. I understand the vote has not yet been
called. There is another floor speech underway. So if I could,
I wanted to ask one more question of this panel because one
partial purpose of this hearing was to offer the opportunity
for some input on S. 2215, which Senator Durbin has filed. Each
of you had some concerns or questions about some provisions of
the bill. I would certainly welcome your taking this
opportunity to convey to Senator Isakson and me any positives
or questions or concerns you might have about the Durbin bill.
If you would, Mr. Under Secretary.
Mr. Sanchez. Thank you, Mr. Chairman. If I may, I'd like to
take a few seconds just before responding to that. Chairman
Hochberg is not the only one with capable staff with him, and
my staff reminded me of one of the initiatives we are doing to
help promote more American activity there. It is U.S.-East
African Community Commercial Dialogue, and this is an
initiative specifically to engage American businesses in
specific sectors where we can have opportunities. So I would be
remiss if I did not highlight that.
With regard to Senator Durbin's bill, we fully support the
goals and objectives of Senator Durbin's bill. As I mentioned
in response to his question, I do believe that if we had
additional resources, we could deploy them in a cost-effective
way in sub-Saharan Africa. And to that end, the President's
budget for the International Trade Administration would include
111 additional staff for the Foreign Commercial Service
worldwide. I am very confident that our resource allocation
analysis would conclude that we could put additional resources
to use, and use them very effectively. So I very much support
the goals and the aspirations of Senator Durbin's bill.
Senator Coons. Thank you, Mr. Under Secretary.
President Littlefield.
Ms. Littlefield. Yes, thank you very much.
We at OPIC also applaud very much the bill's intent and
clearly we are operating very much along the same lines, given
that we have increased our work in Africa by threefold in the
last year. So we are moving in the direction that the bill
signals.
I would point out, however, that as a development finance
institution, we are actually smaller than our peer G8
development finance institutions, not to mention China. We are
smaller. We are more constrained, and we have less instruments.
That is on an absolute level. If you compare us to the size of
our business community, we are very, very, very small.
So I too would say that we would heartily encourage,
please, and thank the Senate for supporting the President's
budget and for also supporting last year a permanent
reauthorization for OPIC in the Senate Foreign Operations
appropriations bill. We hope very much that we can get at least
a multiyear reauthorization, if not a permanent one, going
forward in the next year, and we would look forward to working
with Congress on that.
Senator Coons. Thank you, Madam President.
And Chairman Hochberg.
Mr. Hochberg. Thank you for asking for our input on this. I
have two concerns about the S. 2215, as it is currently, two
particular concerns.
One is setting aside 25 percent of the increase in our
lending cap each year for sub-Saharan Africa. I think this is a
dangerous precedent to start carving up the increase in lending
cap for certain parts of the world or sectors or industries.
What it could lead to is--first of all, we do not have that
much extra room in our lending cap, and it could mean easily
that we would start declining other exports to other parts of
the world because we are trying to reserve funds that may or
may not be used each and every year. So I am concerned about
starting to carve up the increase in our lending cap each year.
The other area that I would like to just note is the
assignment of no less than three employees to sub-Saharan
Africa. We rely on the Under Secretary of Commerce, for
instance, and his team, as well as the Embassy. And I think we
have far more leverage working with the Commerce Department and
the State Department, and these are the kinds of things that
President Obama has proposed in terms of reorganizing the trade
functions so that we do not each have our own little pockets in
each different country.
So those are two concerns I have as the law is currently
drafted.
Senator Coons. Thank you. And I look forward, Under
Secretary, to working with you to better understand the model
that you are using going forward, to see the outcome of your
next update, and to have an ongoing conversation about the role
of the Foreign Commercial Service, something I think we both
support.
At this point, Senator Isakson, did you have any further
questions of this panel?
I am going to thank this panel. We are going to recess to
the Senate, and hopefully cast our votes relatively quickly.
And my expectation is that we will return by 4:20 or 4:30 at
the latest and resume with our second panel. This hearing is
temporarily in recess. Thank you.
[Recess.]
Senator Coons. I call this hearing of the Senate Foreign
Relations Committee back into session. I apologize for the long
delay. We had a vigorous exchange of views between the leaders
of our respective caucuses and two votes. And the Vice
President graced us with his presence as the presiding officer.
So we had a really full exchange on the floor of the Senate.
So I am grateful for the testimony of our second panel and
would like to invite you to give opening statements and then we
will proceed to questions. Dr. Kimenyi, if I might start with
you and then turn to Mr. Hayes and then to Mr. Eisner, if that
would be OK.
Dr. Kimenyi.
STATEMENT OF MWANGI KIMENYI, SENIOR FELLOW AND DIRECTOR, AFRICA
GROWTH INITIATIVE, BROOKINGS INSTITUTION, WASHINGTON, DC
Dr. Kimenyi. Thank you very much, Chairman Coons, Ranking
Member Isakson, and other members. I thank you very much for
this opportunity to highlight the importance of greater United
States engagement with Africa. Our program at the Brookings
Institution on Africa does focus particularly on the way the
United States engages Africa particularly on commercial
matters. So we are very happy to be here today.
For the last decade and a half, African economies have
sustained high growth rates, more than any other region except
Asia. This growth has been made possible because of fundamental
reforms in the continent, both economic and political, that has
made the continent a better place for doing business. Africa
today is much different and offers many opportunities for
countries like the United States to engage the continent
because of the improved business climate. Rather than viewing
Africa from a donor-recipient perspective, the United States
should look at Africa as a place for mutually beneficial
exchange.
Many other countries, as has been noted before, such as
Brazil, Russia, India, and China, have realized the great
opportunity that Africa has to offer. Even countries such as
Iran and Turkey have heightened their commercial interests in
Africa, and America should not be edged out in this market. We
believe that America should play a big role.
In addition to natural resources that have, no doubt,
attracted the new players in Africa, Africa has a growing
middle class that constitutes an important consumer class,
which is a very good market for exports, and it is expected
that this middle class will continue to grow. There are many
investment opportunities with natural resource extraction. Many
African countries are seeking to transform their agriculture,
and as such, United States investments could be very important
in supplying this technology transfer. Other opportunities
involve technology transfers.
In addition, there is increased focus by African
governments on improving infrastructure to narrow the huge
infrastructure deficit. This also offers an opportunity for
American companies to do business in Africa.
Another important aspect of African economies today is that
the African governments are committed to regional integration,
making the markets larger, which makes it better to do business
because now firms can exploit the economies of scale. In
addition, African countries continue to discover new natural
resources, in particular, oil and gas. Although we do not want
necessarily the firms to focus just on natural resources, this
will continue to be an important area of engagement.
Now, in terms of trade, America has continued to engage
Africa particularly through the African Growth and Opportunity
Act, which has been very important in creating jobs, employing
a lot
of people like women, and thus removing them from poverty. So
in this sense, particularly the associated provision, third-
country fabric provision, is very important in terms of
protecting these workers in Africa.
Now, in terms of the proposed bill, the Increasing American
Jobs through Greater Exports to Africa Act of 2012, we think
this is a very good approach because it recognizes the
potential benefits to America of greater engagement with
Africa. The bill appropriately takes note of many of why
America should not be at the margins of the African market but,
instead, should be at the center.
However, we think that the bill is not optimistic enough.
It calls for an increase in American exports by 200 percent in
real terms over 10 years. This, we think, is rather low
considering the dynamics in the African Continent and also the
number of players, the improved climate in the continent, and
also the fact that some countries have increased this within
the same time period by much more.
One of the reasons for the fact that businesses from other
countries have been able to penetrate Africa is because of the
support they receive from their governments. We think that
although the various U.S. Government agencies have been
supporting the business firms, there is much more that could be
done because this support has been small in scale and scope. So
I believe that to really be able to engage Africa more, the
United States should, as the previous speakers said, invest
more in supporting business. That is why China has been able to
increase its involvement in Africa. There are more commercial
agents, representatives from China, and the United States has
been drawing down on its representatives. So we think that
greater representation and more focus and more resources to
these agencies would go a long way in supporting this act.
And in addition, finally, Mr. Chairman, I think there are
many other tools that could be used to support investments
because this is one area where I think American firms have not
really done as well, which could be, for example, tax
incentives that could be used so that the American firms can
venture more in Africa.
So thank you very much, Chairman. I will be happy to answer
the questions.
[The prepared statement of Dr. Kimenyi follows:]
Prepared Statement of Mwangi S. Kimenyi
INTRODUCTORY REMARKS
Chairman Coons, Ranking Member Isakson, honorable members of the
Committee on Foreign Relations, and distinguished members of the
subcommittee, I thank you for this opportunity to highlight the
importance of greater U.S. engagement with Africa.
The Africa Growth Initiative (AGI) at the Brookings Institution
seeks to articulate informed African voices in Washington with a
special focus on relationships between Africa and the United States. A
particular focus of AGI's work has been on evaluating the commercial
relations between the United States and Africa. AGI takes the view that
the relationship between the United States and Africa should not be
defined by a donor-recipient relationship but rather must be based on
mutually beneficial engagement. Thus, Senate bill S. 2215, The
Increasing American Jobs through Greater Exports to Africa Act of 2012,
is consistent with this approach as it highlights the benefits that the
United States can secure through greater expansion of trade with the
continent.
The United States has been engaging with Africa for a long time.
There are clear benefits for this engagement to both Africa and the
United States in terms of security, commerce and trade. The United
States has been at the forefront in supporting Africa in form of
humanitarian assistance whether in times of natural and/or manmade
disasters. The United States has also supported Africa in dealing with
major health issues such as HIV/AIDS and malaria, and has been involved
in various developmental programs that have supported African
economies. These initiatives have made a difference in the lives of
Africans. However, while it is true that the United States has
benefited from its engagement in Africa, the focus of this relationship
has been seen as one that mostly benefits Africa often at the expense
of American taxpayers. Thus, United States-Africa engagement has been
defined by some as that of a donor-recipient relationship.
The foundation of this donor-recipient relationship was primarily
due to the state of hopelessness that characterized the continent
during the first three decades of independence. The period following
the independence of many African countries (1960-1980s) is often
referred to as the ``lost decades'' for the continent. This was a
period characterized by significant political instability with most of
the countries marked by frequent coups and brutal military rule. Those
countries not under military rule tended to be single-party,
authoritarian regimes that allowed limited expression of voice by the
citizenry. On the economic front, the African economies were
inefficiently managed and the environment for doing business was
extremely poor. The consequence was poor economic performance,
corruption, civil wars, and limited human development. These features
came to define the relationship between Africa and the international
community; during this period, the continent was not seen as a place to
invest or do any business, but mainly as a recipient for aid.
But the Africa of the 21st century is different from the one
described above. Today, Africa is a land of opportunity both for
Africans and the international community. Many commentators have
referred to it as ``emerging Africa'' in recognition of the many
changes that have taken place and that continue to take place across
the continent. This new Africa calls for a change in the way that the
international community, and specifically the United States, engages
with it. Toward this end, this testimony focuses on United States-
Africa engagement, with specific emphasis on why it is crucial for the
United States to increase its commercial presence in the continent.
I will organize my remarks into four areas: (1) an overview of
Africa's recent growth and the potential that the continent has for a
mutually beneficial relationship with United States; (2) an overview of
new partners that are engaging Africa and the implications for the
United States; (3) a brief overview of United States-Africa commercial
relationship to date; and (4) strategies to expand the commerce between
the two sides.
EMERGING AFRICA
After decades of poor political governance and economic
mismanagement, Africa has changed course and undertaken far reaching
political and economic reforms. These changes have yielded handsome
returns in the form of economic growth and improved quality of life as
measured by various indicators of human development; they have made
Africa a more desirable destination for foreign direct investment; and,
they suggest that the future growth prospects for most African
economies are strong.
Since the middle of the 1990s, Africa growth rates have been high--
over 5 percent on average, surpassing most other regions except Asia.
Although African economies were affected by the recent global financial
volatility and continue to feel the effects of the eurozone crisis, the
economies have shown a high degree of resiliency. For example, analysis
by ``The Economist'' magazine shows that between 2001 and 2010, sub-
Saharan Africa was home to six of the world's fastest growing economies
with average GDP growth rates above 7.5 percent. These high rates are
expected to continue in the coming years. According to the
International Monetary Fund (IMF), the predicted economic growth in
Africa is expected to show a positive trajectory over the next decade,
with average growth rates that surpass most other regions.
Although it is true that commodities have been an important
contributor to economic growth, the Africa growth story is not merely
that of commodity prices. The core source of the growth is based on
fundamental changes that have made the economies more competitive and
attractive to investors.
Probably the most significant change in Africa has been the
improvement in political governance. Unlike in the past, when Africa
was mainly ruled by dictators, many countries have now established
democracies that are founded on constitutionalism. While there are
weaknesses in many of these democracies, they represent a much better
form of governance than was present historically. The governments are
more inclusive and have institutionalized mechanisms for holding
leaders to account; they are more transparent and less corrupt.
A salutary benefit of improved political governance has been better
public policies. Africa's economies are better managed today than they
were in the past--there are less stifling government controls and
better monetary and macroeconomic management. For example, African
countries now have sustainable domestic debt ratios, helped by a steady
decline in the government debt between 2000 and 2011. There is less
inflation and more price stability. In addition, there have been marked
improvements in the investment climate--simpler licensing and
regulatory schemes, predictability in policy, and improved
institutional infrastructure and taxation regimes.
The IFC/World Bank report ``Doing Business 2012'' indicates that 36
of 46 governments in sub-Saharan Africa improved their economy's
regulatory environment for commerce in 2010/11. Of note is that African
countries have undertaken far-reaching trade reforms making it much
easier to trade across national boundaries. There have been major
reforms in the administration of customs, especially in countries that
are implementing electronic data management systems. While it is still
costly to do business in Africa, the trends in improving the
environment for business are encouraging and are expected to make
Africa competitive as a destination for investment.
Another important change that has supported economic growth in
Africa has to do with advances made in regional integration. Individual
African countries have fairly small economies and are not as attractive
to investors because of the limited size of their markets. Regional
integration is therefore an important strategy for growth as it is
associated with larger markets where firms are able to exploit
economies of scale. In addition, regional integration lowers the cost
of exchange generally by reducing tariffs and other nontariff barriers
across national boundaries. Over the past decade, various regional
blocks have made significant progress towards integrating their
economies. Many have established a common external tariff and are in
the process of implementing various customs union protocols. The
African Union is spearheading the establishment of a Continental Free
Trade Area (CFTA)--which will likely take a long time to establish--but
nonetheless portends well for the future growth of Africa.
In addition to Africa's economic growth story and the various
explanations for growth, there are a number of other changes that have
bearing on how the United States engages with Africa. These are
detailed below:
A growing middle class: One of the consequences of the high
rates of economic growth in Africa is an increasing consumer
middle class. The African Development Bank indicates that the
size of this group rose by 60 percent from 2000 to 2010. It
represents an important demographic for producers and exporters
in the United States to target for the sale of their goods and
services.
Investment opportunities: With the improved environment in
terms of doing business, Africa is a much better region to
invest in than it was in the past. As a result, investment
flows to the region have been increasing--from $9 billion in
2000 to $62 billion in 2008. The rates of return in the region
are high, even in comparison to Asia. In addition to
investments that exploit the reserves of natural resources,
there are many lucrative opportunities to invest in other
sectors, such as agriculture and agro-processing.
Newly discovered natural resources: Natural resources, such
as crude oil, have been important drivers for foreign direct
investment (FDI) in Africa, and one of the primary reasons that
many new players are investing in Africa. Recently, Africa has
discovered a great deal of new resources, particularly in
Kenya, Tanzania, and Mozambique. In these three nations, the
U.S. Geological Survey estimates there are over 250 trillion
cubic feet of natural gas (in comparison, Nigeria, Africa's
biggest energy producer, has some 186 trillion cubic feet of
natural gas). These recent discoveries show that the continent
will remain an important source of energy in the near and far
future.
New Partners: Another change that has taken place in Africa
is the entry of new partners who have aggressively sought to
forge relations in African countries. Their role is discussed
in the following section.
SCRAMBLE FOR AFRICA BY NEW PARTNERS
One of the most significant developments in Africa over the last
two decades has been the ``new scramble'' for the continent. Among the
most important of the players in this scramble are the BRICS,
specifically Brazil, Russia, India, and China (in addition, there are
other non-BRIC countries that are increasingly entering African
markets, like Iran and Turkey, but they generally are of lesser
importance in this role). While these new players have to some extent
been attracted to the continent by the availability of natural
resources, their scope of engagement has widened to many aspects of
commerce and human development. They have provided Africa with greater
opportunities for exports and for aspects of development cooperation,
including aid projects and joint business ventures. These new
partnerships have been pivotal in sustaining Africa's growth over the
last decade.
Among these new partners, China has been the most aggressive in
engaging with Africa. In 1998, its share of exports from Africa was
roughly 3 percent; a decade later, by 2008, this figure had grown to 15
percent--and in 2009, it had become Africa's largest trading partner,
overtaking the United States in that position. But China has gone to
Africa not only in search of natural resources--as some commentators
believe--but also to engage Africans in various aspects of development.
There are numerous examples that illustrate this point:
The Government of China is estimated to maintain over 150
commercial attaches and associated staff at its embassies in
some 48 African countries. (These figures were determined using
publicly available information provided by the Government of
China and calculated by colleagues at the Brookings
Institution). According to a recent report produced by AGI,
there are currently just five U.S. Commerce Department Foreign
Commercial Service Officers in Africa and one is set to leave
from the Embassy in Ghana this summer. Senate bill S. 2215, The
Increasing American Jobs through Greater Exports to Africa Act
of 2012, proposes to increase this number to 14.
President Hu Jintao has made seven trips to Africa, five as
a head of state, and has visited at least 17 countries. More so
than the United States, China holds discussions with African
governments, such as the Forum on China-Africa Cooperation
(FOCAC), which convene heads of state every 3 years and is
dedicated to enhancing economic, political, and social ties
between the two partners.
China has bilateral agreements with more than 30 African
countries that are designed to protect and encourage foreign
investment. It has agreements with more than 10 African
countries to help investors avoid the issue of ``double
taxation.'' In comparison, the United States has bilateral
investment treaties (BITs) with only six countries (a seventh
is in progress) and trade and investment framework agreements
(TIFAs) with eight. AGI has long encouraged the United States
to establish tax credits for repatriated profits for U.S.
businesses in Africa in order to incentivize U.S. firms to
invest on the continent.
The Government of China created the China-Africa Development
Fund. This is an equity fund that supports Chinese enterprises
investing in Africa; it has existed for 3 years and has
approved over 30 projects, which have spanned a variety of
sectors. It is now looking to expand from US$1 billion to US$5
billion.
China has worked toward the creation of Economic and Trade
Cooperation Zones in Africa. It is building six of these zones
currently (in countries such as Zambia, Nigeria, and Ethiopia).
The one in Zambia was China's first and so far, some 13
companies from a variety of sectors have utilized it.
Collectively, they have invested some US$600 million and helped
employ 6,000 locals.
China's engagement with Africa has also actually resulted in
African enterprises investing in China. Specific examples include a
venture started by a South African enterprise, which produces beer in
nearly 70 breweries in China, as well a merged enterprise from Tunisia
and China that has become a prominent fertilizer producer in Asia. By
the end of 2009, Africa's total direct investment in China equaled
roughly US$10 billion and drew from a wide range of industries: from
petrochemical engineering to telecommunications, from textiles to real
estate, etc.
These facts and figures are meant to demonstrate the growing
importance of the relationship between China and Africa. China is,
however, just one among many countries that have ratcheted up
commercial interest in the continent. One could similarly expand on
India's role--the country's commerce and industry minister announced a
goal of $90 billion in trade with the continent by 2015 and has stated
they will set up an ``integrated textile cluster'' in Africa that is
expected to attract $350 million in investment and provide jobs for
around 60,000 people. The takeaway message here is that competition to
do business in Africa has intensified and the United States should take
note of these developments in formulating its own engagement strategy.
UNITED STATES-AFRICA COMMERCIAL RELATIONS
The African Growth and Opportunity Act
The African Growth and Opportunity Act (AGOA) remains the most
important piece of legislation as far as the United States-Africa
commercial relationship is concerned. The act provides for duty- and
quota-free access to American markets for many goods from sub-Saharan
Africa. Since its enactment into law in 2000, African exports to the
United States increased steadily until 2008 when they experienced a
sharp drop, but have since started to recover in 2010. Data from a
recent AGI report, entitled ``The Africa Growth and Opportunity Act
(AGOA): Looking Back, Looking Forward'' by Witney Schneidman and Zenia
A. Lewis, examines the trends in depth and provides the foundation for
this section of testimony.
Exports from AGOA beneficiaries were $53.8 billion in 2011. This
represents a 21.5-percent increase in AGOA exports from 2010 and a more
than 500-percent increase from the initial $8.15 billion in AGOA
exports in 2001 (shown in the appendix). Mineral fuels and crude oil
drove this increase and accounted for 91.6 percent of AGOA exports in
2011 (shown in the appendix). AGOA's share of total U.S. imports,
although still relatively small as an aggregate number, grew from 0.7
percent to 2.5 percent during this 10-year period. During the last 10
years, on average, more than 70 percent of sub-Saharan Africa's exports
to the United States have enjoyed duty-free status under AGOA or the
Generalized System of Preferences (GSP).
Over the course of the decade, petroleum products accounted for
roughly 89 percent of AGOA imports, though they would have entered the
U.S. duty-free under GSP even without AGOA. Nonetheless, oil imports
underscore the growing importance of sub-Saharan Africa as a source of
imported energy resources. For example, Angola and Nigeria have
consistently accounted for about 10 percent of U.S. imported oil during
the last decade. Moreover, given the recent discoveries of oil in other
countries in the Gulf of Guinea, U.S. reliance on imported oil from
sub-Saharan Africa will likely continue to grow. It should be noted
that the region provides a proportion of U.S. oil imports comparable to
the Middle East (in fact, it was slightly higher in 2010). In addition,
the quality of West Africa's crude oil and the region's proximity to
the eastern United States have made the region one of increasing
strategic significance for the United States
AGOA's nonpetroleum exports showed steady growth between 2001 and
2011, virtually tripling from about $1.2 billion to $4.5 billion, and
peaking at $4.7 billion in 2008. In the early years of AGOA, the number
of countries and the variety of sectors reflected in the nonpetroleum
exporter group were small. In AGOA's first year, only 13 of the 34
eligible countries exported nonpetroleum products to the United States
through the legislation; now this number stands at 22.
Textile and apparel accounted for more than $850 million in 2011,
which was more than double the level of 2001, although a decline from a
peak of more than $1.6 billion in 2004 (shown in the appendix).
Transportation equipment imported under AGOA, mostly automobiles from
South Africa, grew from $296 million in 2001 to $2.1 billion in 2011.
The capacity of Africans to export apparel and textiles to the
United States has been boosted by the Third Country Fabric provision,
which allows for duty-free status for apparel exports made from fabric
that is sourced from third-countries. Without this provision, which is
still set to expire in September 2012, many African countries would not
be able to export apparel to the United States It has been very
important for countries including Mauritius, Lesotho, Swaziland, and
Kenya, which export the largest percentage of apparel and textiles to
the United States (Smaller suppliers of apparel products include
Botswana, Malawi, Ethiopia, South Africa, Tanzania, and Ghana.)
It is estimated that AGOA has helped in the direct creation of
300,000 jobs in Africa, many of which are in the textile sector and
have gone to women. In addition, according to Paul Ryberg of the
African Coalition for Trade, the legislation has also succeeded in
indirectly creating 1.3 million jobs.
But AGOA has also not realized its full potential. Only a
relatively small fraction of the available product lines available
under AGOA have been exploited--primarily due of the limited
diversification in the African countries. It has also not spurred
American investments in Africa, as once hoped. U.S. investments in the
continent remain low (although they have shown some increase).
America's investment position in sub-Saharan Africa is less than 1
percent of its direct investment worldwide.
Increasing support both to African countries and to American firms
investing in Africa could significantly bolster the commercial
relationships between the two sides. The agencies of the U.S.
Government that have played and could play an increased role in
supporting United States-Africa trade include the Commerce Department,
the United States Agency for International Development (USAID), the
United States Department of Agriculture (USDA), the Export-Import Bank
(Ex-Im) and the Overseas Private Investment Corporation (OPIC). Below,
I briefly highlight the role and status of a couple of these agencies
as related to the United States-Africa commercial presence.
Department of Commerce: During the past several years, the Foreign
Commercial Service (FCS) of the Commerce Department has substantially
reduced its presence in Africa and its ability to support American
business. AGOA originally directed the Commerce Department to ensure
there were at least 20 full-time FCS officers stationed in 10 sub-
Saharan African countries. Currently, there are only five officers in
the region, in Ghana, Kenya, Nigeria, and South Africa (where there are
two). The FCS has closed its offices in Dakar, Abidjan, and Durban and,
according to U.S. Government officials, the FCS officer in Accra will
not be replaced once he departs in the summer of 2012. The Commerce
Department there will be staffed only with locally hired people, as is
the practice in Cape Town for several years. Although locally hired
staff are important for understanding and engaging the local market,
there is no substitute for career FCS officers supporting and
implementing U.S. commercial diplomacy. Therefore, the Department of
Commerce should put a higher priority on staffing its FCS in African
countries. As mentioned previously, the United States is lagging far
behind countries like China with regard to this issue.
United States Export-Import Bank (Ex-Im): Although the Commerce
Department has pulled back from Africa, the U.S. Export-Import Bank has
become increasingly aggressive there. One of its main tasks is to
promote U.S. trade with the region and if recent history is any
indication, it seems to be doing well. Between 2009 and 2011, the value
of transactions supported by Ex-Im increased from $412 million to
$1,392 billion--a record level for the agency--and from 132 to 179
transactions. In terms of coverage, Ex-Im financed exports to 31
countries in sub-Saharan Africa in 2011. The majority of these exports
were relatively small transactions under $200 million. Large
transactions--such as support for Boeing aircraft to Rwanda and Angola,
and GE locomotives to Transnet in South Africa--account for the lion's
share of Ex-Im's financial portfolio in the region. Of the 49 countries
in the region, Ex-Im is open in 43 countries in the short term, 29
countries in the medium term, and 19 countries in the long term.
Globally, Ex-Im supports about 4 percent of U.S. exports through its
various programs, and in sub-Saharan Africa, it supports about 8
percent of U.S. exports.
The agencies discussed above have an important role to play in any
legislation that seeks to increase commercial engagement between Africa
and the United States. The Department of Commerce and Ex-Im, along with
USAID, USDA, and OPIC, could do more to support both African exports
and to strengthen the U.S. commercial presence in Africa.
Senate bill S. 2215: The Increasing American Jobs Through Greater
Exports to Africa Act
The proposed legislation Increasing American Jobs through Greater
Exports to Africa Act takes note of the potential benefits that
engagement with Africa offers the United States. The legislation
targets increasing exports of U.S. goods and services to Africa by 200
percent in real dollar value within 10 years. To achieve this target,
it calls for improving the competitiveness of U.S. businesses in Africa
and seeks to educate American businesses on the potential that Africa
holds as a market for U.S. products. Among other provisions, the
legislation calls on the Export-Import Bank to utilize its profits to
assign no fewer than three of its full-time employees to U.S. embassies
in Africa and to increase funding for United States-Africa projects.
The proposed act provides a necessary direction for U.S.
engagement, but could be expanded. The increase of 200 percent in
exports to Africa over 10 years is modest. Given the changes taking
place in Africa in terms of economic growth and the rise of the middle
class, an increase of 200 percent appears somewhat understated. When
this is compared to China's exports to Africa (which have increased
around 700 percent between 2002 and 2011) it is apparent that the
target could be much higher. (For recent historical perspective on the
matter, see the appendix). Current rates of American exports to Africa
are estimated to support 100,000 U.S. jobs.
But the act is to be commended for calling for a different approach
in the way the United States engages with Africa. It starts with the
premise that the continent offers many opportunities that can be
exploited for the benefit of both Africans and non-Africans.
Furthermore, the legislation recognizes the importance of the BRICs in
the African market and recognizes that one of the reasons why
businesses from these countries have been able to penetrate the market
as successfully as they have is because they have received significant
support and encouragement from their home governments. In response, the
legislation appropriately calls for more support of American firms that
seek to do business in Africa.
The legislation also requires that at least 25 percent of the
projects financed by the Export-Import Bank take place in Africa. Ex-Im
has significantly increased its efforts on the continent recently, but
the efforts of analogous banks in countries like China are still far
out-pacing it. This aspect of the legislation is an important step in
helping the United States become more competitive in the region.
Another key aspect of this legislation is the call for the White
House to create a coherent trade and investment strategy for enhancing
American business in sub-Saharan Africa and to designate an individual
to carry out this strategy. As noted above, AGOA has been very
important in redefining the United States-Africa commercial
relationship; the proposed act, however, does not reference how it will
work in coordination with AGOA to be part of a broader trade and
investment strategy. It is important to include a discussion of this
type in the legislation.
CONCLUDING REMARKS
I would like to thank again the chairman, ranking member, and
honorable members of the Committee on Foreign Relations for this
opportunity to highlight the importance of greater U.S. engagement with
Africa.
My testimony has tried to illustrate a number of points. The first
is that the United States should transition away from the type of a
donor-recipient engagement it has with Africa toward a relationship
that is more mutually beneficial. This change in paradigm has been made
possible by the fact that Africa has, in many parts of the continent,
turned a corner in its effort to develop its economies and political
structures. Over the last two decades, its countries have instituted
major political and economic reforms, which have resulted in a more
stable environment and have produced stronger economic policies. These
reforms are, in part, responsible for the high rates of economic growth
and the new business opportunities sprouting up throughout the
continent.
This new climate has caught the attention of many non-African
countries. China, in particular, has redoubled its efforts to engage
economically with the continent. Its exports to Africa have increased
by more than 700 percent between 2002 and 2011, and it is estimated the
country has over 150 commercial attaches and associated staff in the 48
African countries. However, as China and other nations increase the
scope of their engagement with Africa, the relative importance of the
U.S.'s commercial engagement with the continent has remained unchanged.
For example, the value of its total exports, in contrast, has remained
basically constant. Additionally, it has stationed only five Foreign
Commercial Service Officers within Africa.
The most significant piece of U.S. legislation defining the United
States-African commercial relationship is the Africa Growth and
Opportunity Act (AGOA); and it is quite a success story. Over the last
12 years, it has been responsible for increasing African exports to
U.S. markets significantly and for creating at least 300,000 jobs in
Africa. But its full potential has not yet been realized: it has not
spurred American investments in Africa as much as initial hopes
suggested it would.
The proposed legislation, the Increasing American Jobs through
Greater Exports to Africa Act of 2012, seeks to complement AGOA. It
appropriately calls for more support to American firms seeking to
engage with Africa. Such support is critically important if the U.S.
economy is to benefit from Africa's economic rise as much as it can and
should.
Recommendations:
The United States should extend the Third Country Fabric
Provision. It has been instrumental in allowing African
producers to export apparel to the United States. It is
critical that this provision, which is set to expire in
September 2012, be extended as soon as possible.
The U.S. Government should do much more to support American
firms that seek to do business in Africa. Creating better
incentives for such companies (possibly in the form of tax
reductions on repatriated profits or higher levels of financing
from U.S. Government agencies, etc.) should be considered
options.
The proposed legislation mandates an increase in U.S.
exports to Africa by at least 200 percent over the next 10
years. Given the economic performance predicted for Africa over
this time-span, this figure should be revised upward.
More commercial attaches should be dispatched by U.S.
agencies to Africa, commensurate to the potential level of
benefit the United States could reap by such engagement.
More high-level discussions regarding economic engagement
should be scheduled and held between the two sides, especially
ones in which U.S. businessmen are able to participate.
Finally, the proposed legislation should identify synergies
between it and AGOA which could be exploited so as to deepen
U.S. engagement with Africa and to create a broader strategy
for action regarding the continent.
[Editor's note.--The appendix referred to in Dr. Kimenyi's
prepared statement can be found at the end of this hearing in
the ``Additional Material Submitted for the Record'' section.]
Senator Coons. Thank you, Dr. Kimenyi.
Mr. Hayes.
STATEMENT OF STEPHEN HAYES, PRESIDENT AND CEO, THE CORPORATE
COUNCIL ON AFRICA, WASHINGTON, DC
Mr. Hayes. Thank you, Mr. Chairman, Senator Isakson. Thanks
for giving me the opportunity to present my views and answer
your questions concerning economic statecraft. It is a subject
that our members feel quite passionate about, as some in the
room already know and appreciate.
I am not here to criticize the efforts of those in U.S.
Government who are working on Africa. I have no reason to doubt
the intent of those in many Government departments who are
working to improve the lives of Africans and, germane to this
hearing today, those who are working to increase United States
economic engagement in and with Africa which, if successful,
will improve the lives of Americans and Africans.
As most of you know, my own organization is solely
dedicated to this purpose. Our track record is well known. Our
commitment to the mission of increasing United States
investment in and trade with Africa is beyond question. We have
been in the forefront of support for AGOA, and our major
conferences on business in Africa have brought tens of
thousands of business people together over the past several
years.
We also have taken innovative approaches to address the
impediments to investment in Africa. One of our most recent
steps has been the development of a U.S.-Africa Business
Center, a project supported by USAID and designed to bring
United States and African business persons together as
partners. The need for viable partners is but one of the major
challenges we face in doing business in Africa and for those
Africans wishing to do business with and in the United States.
We also conduct more than 150 working group meetings a
year, bringing together public and private sector
representatives to address a range of diverse issues.
We do recognize and appreciate the challenges of economic
development in Africa as managed by the U.S. Government
departments and bureaus. Of particular note are the Overseas
Private Investment Corporation and USTDA, both of which are
particularly helpful to U.S. companies investing in Africa.
OPIC's loans and guarantees, political risk insurance, and
support for investment funds do provide crucial financing.
USTDA creates important business linkages through conferences
and other means. Certainly MCC, USAID, U.S. Department of State
have taken some very noteworthy initiatives for Africa as well,
nor can we doubt the intent and commitment of the individuals
within Ex-Im and the U.S. Department of Commerce.
Yet, despite our efforts as an organization and all the
work of the U.S. Government entities I just noted, the reasons
we are here today are quite obvious. The United States is far
less successful in developing trade and investment in Africa
than we had hoped or even perhaps expected. We need to do much
better and soon as many, including our member companies,
believe that our trade and economic relations with the nations
of Africa should be among our highest national priorities. We
are dependent upon Africa for many things, including energy and
rare earth elements. However, even more importantly, Africa
represents a great economic frontier essential to increasing
American jobs and exports. African nations, however, will
necessarily gravitate toward those countries who are investing
most heavily in their economic well-being. We need to be
investing far more in Africa for the sake of our own place in
the world.
There are enormous opportunities that we simply have yet to
take advantage of. Africa needs electrical power. It needs
infrastructure. There is not a country in Africa that is
meeting its power needs at this time. Nigeria is only meeting
20 percent of its power needs. It needs training for its
workforce. These are areas in which the United States still
leads the world. Yet, we have not yet reached into the African
market.
The reasons for this are many. We can discuss how we can
improve the performance of each agency or even CCA, but I am
not sure that will give us the results we need. We need a new
vision and plan for our relationship with Africa, one that goes
far beyond AGOA and one that also serves the interests of the
American economy and workforce. Whether Congress, the
administration, and the American people have the will to do
this remains to be seen. But I also am especially encouraged,
Senator Isakson, that your legislation that you mentioned could
be a very important part of this.
What we can do, however, now is to increase the dialogue
between the public and private sectors, as you were noting in
the legislation, as I understood earlier. That dialogue as
partners is woefully absent in making our plans for economic
engagement. Plans made by Government to support the private
sector are seldom developed with the private sector. Yet, it is
the private sector that will be the implementers of economic
engagement. But if policy developed has little or no real input
from the private sector, there is little reason to expect
significant successes. It is also clear that individual
Government departments need to coordinate their approaches
better beyond simply informing one another what they are
planning. In short, we need a new dialogue on Africa and we
need that dialogue very soon.
Thank you.
[The prepared statement of Mr. Hayes follows:]
Prepared Statement of Stephen Hayes
Honorable Senator John Kerry, chairman of the Senate Foreign
Relations Committee and the Honorable Senator Richard Lugar, ranking
member of the Senate Foreign Relations Committee, and other honorable
committee members, thank you for inviting me to speak to the Committee
on Foreign Relations regarding the challenges facing the United States
public and private sector as we seek to increase U.S. investment and
greater trade with Africa. Certainly there are new approaches toward
this goal, including the coordinated approach to U.S. commercial
relations with Africa contained in S. 2215 (Increasing American Jobs
Through Exports to Africa Act of 2012). We support this bill but
recognize that much more needs to be done. We very much appreciate the
efforts of Senators Richard Durbin, Chris Coons, and John Boozman to
sponsor this bill in the Senate and their continued efforts to secure
passage before the 112th Congress recesses. We also appreciate the
efforts of the chairman and ranking members of the African Subcommittee
on African Affairs, Senators Coons and Johnny Isakson to maintain a
bipartisan approach to U.S.-Africa policy, as well as CCA's close
working relationship with them. I believe the bipartisan approach that
currently exists on Africa between Senators Coons and Isakson is
essential for the work that needs to be done to support greater U.S.
investment in and trade with Africa. It must be that example that leads
others to work more closely together on U.S.-Africa relations.
I am honored to testify in Congress on behalf of the Corporate
Council on Africa, the only business organization in America solely
dedicated to U.S. economic relations with Africa, and whose member
companies represent approximately 85 percent of all U.S. private
investment in Africa. CCA has a diverse pool of companies in 20
different sectors of the U.S. economy. Our 28 staff members represent
the largest unit in the United States solely dedicated to U.S. economic
trade and investment with Africa. We have more than a dozen working
groups meeting monthly on African economic issues, and convene major
U.S.-Africa conferences each year. The Corporate Council on Africa is
also the only U.S. business organization with an MOU with the African
Union (AU). Through that MOU we will partner with the AU on our U.S.-
Africa Agribusiness Conference in the autumn of this year (2012), which
will focus on inclusive agricultural investment.
CCA is a leading source of up-to-date information on business
across Africa. We work closely with governments, multilateral groups
and businesses to improve the continent's trade and investment climate,
and to raise Africa's profile in the U.S. business community. We
convene the biennial U.S.-Africa business summit which normally brings
together more than 2,000 U.S. and African Government officials and
private sector leaders, and we just recently completed the U.S.-Africa
Infrastructure Conference, which attracted more than 500 participants
from Africa and the United States to discuss opportunities in African
infrastructure development.
CCA has developed recently, through the support of the United
States Agency for International Development, the U.S.-Africa Business
Center whose primary purpose is to identify business partners and
opportunities in Africa for U.S. companies, especially small and
medium-sized businesses exploring new markets and seeking to scale up
their operations. This will prove to be very important to the Nation's
relations with Africa and the development of the American and African
private sectors.
The subject of today's hearing, ``Economic Statecraft: Increasing
American Jobs through Greater U.S.-Africa Trade and Investment'' is a
subject of far greater importance to America than many in this country
may realize. It is not simply a matter of jobs at stake in our
relationship with Africa, but our political future in a global society
as well. Our economic relationship with Africa will be one determined
by the many different factors that will play out in the course that
African nations will take over the next century. While this direction
will be largely determined by African nations and institutions, we have
an opportunity to assist in shaping this course by the actions we take
now.
Africa represents a quarter of the world's countries, and a sixth
of the world's population. Africa currently provides for nearly a
quarter of America's oil supplies, and several of its necessary
strategic minerals. Africa will also soon provide an important portion
of the world's natural gas supplies. Perhaps most importantly for both
African and American jobs, the continent is the largest untapped
marketplace in the world with a rapidly expanding middle class of
consumers.
I would like to use the provisions in the bill (S. 2215) as a
starting point in discussing what is needed to strengthen U.S.
initiatives in Africa designed to increase U.S. investment and trade.
The bill S. 2215 complements the existing U.S. program, the African
Growth and Opportunity Act (AGOA) and with prompt enactment will
strengthen the U.S. private sector position in the region. To the
extent the bill's objectives of doubling U.S. exports to the region can
be attained, it will also create jobs in the U.S. and Africa. It will
contribute to African and U.S. prosperity through fuller participation
by Africa in global supply chains and the distribution networks of U.S.
companies. However, nearly all recognize that the results of AGOA to
date, with the possible exception of the apparel and textile industry,
have been disappointing. If we are to stay with AGOA beyond 2015, then
enhancement and deepening of its provisions will be essential. For its
current scope, the renewal of third-party fabric provision is critical
and politically and economically in the best interests of both the
U.S.A. and Africa. The longer the provision's future remains uncertain,
the greater the likelihood that orders will be pulled and jobs lost.
Its renewal should not be delayed further.
Turning to S. 2215, there are a number of provisions which are
crucial to U.S. business if we are to regain momentum in doing business
with Africa. They address some of the issues that make it difficult for
U.S. businesses to engage more actively in Africa. One of the most
important provisions is the earmarking of 25 percent of the recently
approved phased-in increase in lending capacity of the Ex-Im Bank from
$100 billion to $140 billion. We support the need to increase staffing
for the Bank, particularly if some of that staff are knowledgeable
about Africa and the financing necessary for U.S. businesses to move
more quickly in trade and investment with the continent. The Bank
should also be allowed to take into account that credit risks of
lending to the region are offset by greater returns. In my view, the
Bank, intended to mitigate risks, has taken a far too conservative
approach to Africa, particularly as it concerns mid-sized successful
companies with exciting growth opportunities.
We also support the designation of a Special Africa Export Strategy
Coordinator to bring together many elements of the USG involved in
promoting trade with the region. There exists within the U.S.
Government competing programs, conflicting missions, and a lack of
clear coherence within on economic trade and investment. There is also
a need to more effectively marshal and coordinate the support of a
number of agencies for U.S. Commercial pursuits in the region. Our work
with our own U.S.-Africa Business Center has demonstrated the
importance of having a central point to assist U.S. and African
businesses, and in our case, particularly SMEs.
We also endorse investor-friendly double taxation treaties, which
make it easier to do business between countries. Tax burdens are
already high and the possibility of taxation in two countries, as well
as taxing away the benefits of African investment incentives, makes
such negotiations a key component of a successful private sector-led
approach.
Related to this, the U.S. Government should enthusiastically
welcome both the roadmap agreed to at the most recent African Union
summit to create a continental FTA by 2017 and the goal of the AU Abuja
Treaty to create an African Customs Union by 2019. While these goals
may be ambitious, these are efforts worth supporting and are in the
interests of U.S. companies wanting to expand markets. The U.S. must be
in the forefront of such efforts designing programs with a regional as
opposed to a national impact and slowing EU efforts to force so-called
free trade agreements on some but not all members of regional trade
communities, thus undermining efforts to allow free movement of goods
between borders and to establish a common external tariff.
We note that several of the provisions in S. 2215 have already
gained administration support and are included in the recent
Presidential Directive on U.S. relations with sub-Saharan Africa. In
this regard, we praise the recent mission to Africa led by Deputy
National Security Advisor to the President Michael Froman. His
commitment that the administration would work with Congress to assure
that unilateral preferences are extended beyond 2015 will allow time
for Africa to deepen regional integration. This stands in sharp
contrast to the EU position to withdraw preferences from some but not
all African countries. We view this as a coordinated approach to Africa
indicating a true partnership between the United States and Africa.
Nevertheless, we still believe that it is best to codify these actions
through the passage of S. 2215.
However, even with passage of S, 2215, there remain significant
needs if we are to more effectively engage economically with Africa.
The questions posed by the committee in advance of this hearing are
good and comprehensive, and we all agree that we need to put the tools
we have in government and in the private sector to the best possible
use. It is not, however, a question of whether the U.S. Government has
devoted adequate resources but far more an issue of how we approach
these challenges. AGOA is not enough, nor is S. 2215. They are
important parts of what is needed, but we need to go further. We need a
new starting point in our relations with Africa.
Increasing trade and investment and facilitating more equitable,
inclusive growth will ultimately need to be driven by the private
sector. Business should be a part of the conversation from the very
start, rather than an add-on later in the process. Companies want to be
a part of sustainable development solutions, and they are the true
pioneers and innovators of more and more creative approaches, but the
benefits of their efforts will be limited if they are not helping craft
the solutions. If government initiatives, even with all the good
intentions on earth, are formed in a vacuum, without the involvement of
the private sector, they will likely fail to achieve real, sustainable
results. Government can do a great deal to help, including defraying
risk for new forms of investment in different sectors, particularly
agriculture which carries both some of the highest risks and the
greatest potential for more equitable development in the countries of
Africa. These actions could be essential to greater investment, yet
they will not be sufficient. Government will need to design these
programs in true partnership with the private sector actors they are
intended to benefit in order for investment, export opportunities and
job creation to become realities.
We cannot compete with alacrity and effectiveness only under
present systems and approaches. A major shift is needed if we are to be
of assistance to African development as well open new markets to create
jobs through exports for the American economy. The people of the United
States, as represented by Congress, the U.S. administration and the
private sector need to come together to develop a common approach to
economic and trade with Africa, one that places high priority on
economic development through trade and investment. Africa is no longer
the basket case of years past, when the primary U.S. contribution was
through unilateral aid programs. A greater emphasis must be placed on
the commercial challenges facing the U.S. in Africa. The U.S.
Government must work aggressively to assure a level playing field for
U.S. companies, large and small.
Government can facilitate, but the implementers will be the private
sector. They will not be able to implement under well-intentioned plans
that fail to understand the very nature of private sector challenges
and pressures, especially when many in government have no experience
and often no empathy with the private sector. However, both the private
sector and government, as a joint expression of our national interests,
would do well to find ways to work together as partners and not in an
unbalanced relationship with a declared master and its followers.
Government is of the people and we need to find ways to come to terms
with one another, understand our different goals, realities, and world
views and find ways to work together effectively as partners.
America can compete with China and others. The opportunities are
significant in agribusiness, IT, tourism and the supplying of power.
There is not a nation in Africa that is meeting its current power
needs, let alone the needs of the future. Africa's single biggest
market, Nigeria, is meeting only 20 percent of its current power needs.
Africa's agricultural sector is the last great agriculture frontier,
with significant untapped potential at all stages in value chains.
Greater investment in Africa's agribusiness sector can present
significant opportunities for U.S. companies as well as a needed
contribution to global food security. America is still a world leader
in tomorrow's technologies, and a leader in agribusiness. Power, IT,
and agribusiness are three of Africa's major needs, and as they meet
these needs their markets will expand, as will job opportunities for
Africans and Americans who can supply these markets.
In any new approach, we will need to address the needs of regions
and not just individual countries. Regionalization is essential for
harmonization of technology, infrastructure, and customs duties.
Regions will create larger markets and allow economies of scale,
permitting major U.S. companies to move more easily into Africa, and
with opportunities for larger companies, suppliers and new smaller
companies. Laws or agreements alone will not be enough to make this
happen. There will need to be far greater understanding of actual
market opportunities, needs, and conditions as well as enhanced
communication among diverse interests in order for U.S. investment and
trade with Africa to live up to its potential. To understand those
market opportunities a much closer dialogue, even to the point of joint
planning, is needed between relevant government entities and key
private sector bodies.
There are many changes that need to be made in our governmental
systems if we are to increase U.S. investment in Africa. I have touched
on some in this testimony. However, in nearly every case, the dialogue
between the public and private sectors is inadequate. We need far
better coordination, dialogue, and support not only within government
but between the government and the private sector. A much stronger
dialogue between the public and private sector is needed if we are to
be successful in Africa, both for the sake of the African and American
economies.
Senator Coons. Thank you, Mr. Hayes.
Mr. Eisner, please.
STATEMENT OF SCOTT EISNER, VICE PRESIDENT, AFRICAN AFFAIRS AND
INTERNATIONAL OPERATIONS, U.S. CHAMBER OF COMMERCE, WASHINGTON,
DC
Mr. Eisner. Thank you. Good afternoon, Chairman Coons,
Ranking Member Isakson. Thank you for the honor of allowing me
to testify at today's hearing. I am Scott Eisner. I am vice
president of African Affairs and International Operations at
the U.S. Chamber.
Today I would like to speak in support of the Increasing
American Jobs through Greater Exports to Africa Act of 2012 and
several other issues crucial to United States-Africa economic
engagement.
The Chamber strongly supports this act and other measures
that help level the playing field for United States commercial
activity in Africa. Over the past decade, 6 of the 10 fastest-
growing economies in the world have been in sub-Saharan Africa.
Demographic trends suggest that by 2050 one in four workers in
the world will be African, and the continent's population will
top 1 billion.
Africa's middle class holds a $2 trillion purchasing power
and are already buying goods made by Procter & Gamble, GE, Coca
Cola, Motorola, and others. This middle class is expected to
grow to 1.1 billion over the next 50 years and will soon
account for 42 percent of Africa's population.
African markets are one of the few remaining growth areas
for United States firms looking to develop new markets. The
continent is expected to grow at 5 percent this year, and
growth rates are expected to hit 10 percent or beyond in places
like Ghana and Angola.
Against this backdrop, the United States must be proactive
in opening new avenues for our companies to go head to head
with our competition in Africa. And indeed, we have been
successful to a large degree. Over the last 10 years, United
States trade with Africa has increased by a multiple of three.
But before we celebrate the rate of increase, consider that
trade with Africa from places like China, India, and Brazil
have increased eightfold over that same period. In fact, as you
noted, just last week China dedicated some $20 billion to that
investment. If there is one sign of the commercial change
taking place in Africa today, this is it. The United States
economic activity is tripling in a decade's time and yet we are
falling further and further behind those of our competition in
China, Europe, and elsewhere.
Against this backdrop of sagging economic activity in a
number of global markets, sub-Saharan Africa is a trade
investment destination we can no longer overlook. But to fully
participate in Africa's economic emergence, the U.S. Government
policy toward the continent must become coordinated and more
accommodating to commercial realities on the ground and
supportive of United States businesses trying to work there. It
is clear that United States companies are interested in closing
the investment gap in Africa. I am actually traveling and
leading a business delegation, along with Secretary Clinton's
trip, a week from Monday where we will be discussing how we
invest more and more in the southern Africa region.
The U.S. Chamber welcomes the recent congressional focus on
Africa. This action sends a clear signal that the U.S.
Government takes seriously its role in stimulating greater
foreign direct investment by our firms into the continent. And
yet, over and above the specific measures included in this act,
the U.S. Government and the private sector both must rethink
the way we go about doing business in Africa, as Steve alluded
to.
There are a couple things I think we can look at both with
this act and outside of it that we can do to re-jigger the way
we do things.
The first is we need to look at how we do trade financing.
Congress and the administration should provide long-term
support for the Export-Import Bank of the United States and
OPIC. We should no longer have in question whether or not banks
that are giving out loans that fall 10 years into the future
should be in question if their viability is going away in X
years' time. Far from being a burden on the Government, as was
pointed out by Chairman Hochberg, Ex-Im returns a profit to the
American taxpayers, and while Ex-Im is addressed in the
legislation that Senator Durbin has proposed, I want to
underscore the importance of OPIC and TDA as well.
Second, we need to talk about the international affairs
budget and its relationship to economic statecraft. Today
overseas markets represent 95 percent of the world's consumers
and 80 percent of its purchasing power. Trade already supports
one in three manufacturing jobs in the United States, and one
in three acres on American is planted for overseas consumers.
The businesses that are capitalizing on export markets are not
just multinationals. More than 280,000 small and medium-sized
businesses export, accounting for nearly a third of all
merchandise exports. The international affairs budget plays a
vital role for U.S. companies to tap foreign markets and create
jobs and prosperity at home. And at a time while export
opportunities represent a potential lifeline to the U.S.
economy and a motor for domestic job creation, these
international programs are more important than ever.
Third, I want to touch briefly on the Foreign Commercial
Service and their importance. Simply put, we are concerned by
the erosion of one of the most successful and useful resources
for American companies on the continent. For years, FCS offices
in U.S. embassies across the continent have provided valuable
advice and assistance for American companies on the ground.
Now, just as many in the U.S. business community are beginning
to focus on Africa in earnest, we are shrinking this role, and
I think it is almost unacceptable. We really need to look and
figure out where we need to put offices for the future and not
just for today.
And fourth, I will focus briefly on trade policy. The U.S.
Chamber also encourages the government to continue support for
the establishment of formalized trade and investment treaties
with Africa's regional economic communities. While we welcomed
2011 ratification of the U.S.-Rwanda Bilateral Investment
Treaty, the first such treaty singed with an African nation in
10 years, we should broaden our approach to seek trade accords
with REC's, regional economic communities, like the East
African Community as alluded to earlier in the conversation. To
do this, it is a matter of importance because our competitors
around the world, namely in the EU, have adopted a regional
trade strategy, and it is a shame that we do not have one as
well.
We are also encouraged by the support of other innovative
mechanisms such as USAID's private capital for Africa group
which brings finance expertise to the realm of trade and
development.
Finally, we urge the Congress to extend and expand the
Africa Growth Opportunity Act and its provisions. AGOA has
proven to be not only good for sub-Saharan Africa, but also it
offers tangible benefits for economic benefits for U.S.
companies here at home.
As you are already aware and have addressed today, third-
country fabric is an issue of importance to the business
community. I know the Chamber and others here at the table have
addressed this in letters and countless meetings on the Hill,
and I would encourage you to talk to your Senators that you
have not identified yet that can repeal their holds on the
legislation going forward.
In closing, Mr. Chairman, the decade ahead will see the
emergence of Africa's economic potential. U.S. businesses have
rapidly been expanding their trade and investment in Africa,
but so too have our competitors. This is the moment of Africa's
emergence and a time for all of us to get on the same page.
I thank this committee for the opportunity to testify
today. With my colleagues at the Chamber, we look forward to
working with you. Thank you.
[The prepared statement of Mr. Eisner follows:]
Prepared Statement of Scott Eisner
Good afternoon, Chairman Coons, Ranking Member Isakson, and other
distinguished members of the subcommittee. Thank you for the honor of
allowing me to testify at this hearing. My name is Scott Eisner, and I
am Vice President of African Affairs and International Operations at
the U.S. Chamber of Commerce, the world's largest business federation,
representing the interests of more than 3 million businesses of all
sizes, sectors, and regions, as well as State and local chambers and
industry associations. Today, I would like to speak in support of ``The
Increasing American Jobs Through Greater Exports to Africa Act of
2012'' and also touch on a number of other issues affecting U.S.
commercial interests in Africa.
The Chamber strongly supports this act and other measures that help
level the playing field for U.S exports to Africa. Gaining better
access to these markets is of increasing strategic importance to the
United States, both in terms of rates of return and sheer commercial
potential. Over the past decade, 6 of the 10 fastest growing economies
in the world have been in sub-Saharan Africa. Demographic trends
suggest that by 2050 one in four workers in the world will be African,
and the continent's population will top 1 billion.
It is time for the United States to open new avenues to help
American companies go head to head with their competitors in Africa.
Over the last 10 years, U.S. trade with Africa has increased by a
multiple of three. We've seen the U.S. Export-Import Bank's support for
U.S. export sales to sub-Saharan Africa rise from an average of $455
million annually in FY 2006-2009 to more than $1.4 billion in FY 2011.
But before we celebrate that rate of increase, consider that trade with
Africa from China, India, and Brazil has increased eightfold over that
same period. Indeed, this trend is accelerating: Last week China
publicly committed to doubling its investments in Africa, with an
additional $20 billion in loans to develop infrastructure, agriculture,
and support to small and medium-sized enterprises.
Against the backdrop of sagging economic activity in a number of
global markets, sub-Saharan Africa is a trade and investment
destination that can no longer be overlooked. But to fully participate
in Africa's economic emergence, U.S. policy toward the continent must
undergo a shift as dramatic as the one shaping Africa's economies. Our
aid-based approach to Africa policy must be replaced by a trade- and
business-based approach--coupled with investment that will benefit both
Africa and the companies and countries that support it.
It is no longer enough simply to advance the general message that
business development and investment is good for Africa or that Africa
is ``open for business.'' The U.S. Chamber of Commerce strongly
believes that we must work to develop specific strategies and
mechanisms to promote and facilitate U.S. business engagement in
Africa, or risk being left behind as international businesses and
investors capture major segments of Africa's market. Accordingly, the
U.S. Chamber founded its Africa Business Initiative (ABI) to encourage
the U.S. Government to pursue policies that facilitate bilateral trade
and investment with African countries and expose U.S. companies to the
continent's vast economic opportunities.
Overall, ABI represents the growing U.S. business interests in
Africa. Our work consists of facilitating U.S. export and import
opportunities, responding to requests for advice, providing expertise
on specific sectors in Africa, and developing a cache of knowledge on
best practices and experiences on how to most effectively engage with
African countries and businesses. ABI also represents the U.S.
Chamber's dedication to growing free and mutually beneficial trade
between the United States and the 48 countries in sub-Saharan Africa.
We are working to advance policies that reduce the cost of doing
business for both U.S. companies in Africa and local African
entrepreneurs. We believe this type of initiative is critical to
leveling the playing field for U.S. companies in Africa, particularly
as major developing countries like China and India are increasingly
supporting their domestic businesses in these new markets.
It will come as no surprise that China's rising role in shaping
Africa's commercial landscape has been identified as one of the
strongest concerns for U.S. businesses over the past year. A growing
perception exists within the U.S. business community that China's
posture has been underestimated, with the result that a competitive
strategy has never been fully developed--hurting both U.S. businesses
and our political influence throughout the continent.
The U.S. Chamber believes that American investment in Africa brings
long-term value to the region and carries significant development
dividends. While U.S. companies' global competitors are often more
effective in mobilizing short-term, no-strings-attached financing for
investments, we also see that many of these investments rely on
imported labor, imported materials, and ultimately provide limited
``multiplier'' effects in terms of local jobs created or skills
transferred.
On the other hand, the U.S. investment community has long
recognized the need to demonstrate a more comprehensive partnership
with host governments and the communities in which U.S. companies
operate. Our members know that large-scale investment must focus on
long-term sustainability. More and more, U.S. companies understand that
voluntarily enhancing local content and transparency in their
investments is the key to a long-term and successful presence on the
ground. Although this may be a more costly and time-consuming approach,
it is nevertheless one that defines and strengthens the U.S. brand
around the world, and it cannot and should not be compromised.
The U.S. Chamber welcomes the recent congressional focus on Africa.
``The Increasing American Jobs through Greater Exports to Africa Act,''
introduced last month in the House, with a matching bill in the Senate,
has sent a clear signal that the U.S. Government is starting to take
seriously its role in stimulating greater trade and investment with
Africa. In light of increased competitive pressures from other global
players, the U.S. business community appreciates this new attention on
unlocking African opportunity.
Over and above the specific measures included in this act, the U.S.
Chamber continues to support more Africa-targeted funding for U.S.
Government agencies that are already entrusted with--and quite
successful at--supporting U.S. investment in emerging markets.
To achieve what we all strive for, which is greater investment by
American companies throughout Africa, we must rethink the way we go
about doing business. We must find a focused ``whole of government''
approach that brings the administration and Congress into alignment
with the needs of business.
WHAT THE U.S. GOVERNMENT CAN DO
Trade Financing: Congress and the administration should provide
long-term support for the Export-Import Bank of the United States (Ex-
Im) and the Overseas Private Investment Corporation (OPIC). In
particular, Ex-Im has a proven record of success. Far from being a
burden on the taxpayer, Ex-Im turns a profit for the American taxpayer.
Since 2005, Ex-Im has returned more than $3.4 billion to the Treasury
above all costs and loss reserves, including $700 million in FY 2011
alone.
While Ex-Im is addressed in this legislation, I want to underscore
that OPIC and the U.S. Trade and Development Agency are also crucial
instruments for encouraging U.S. commercial engagement in Africa by
providing a point of market entry, replete with tools for risk-
mitigation and concessional financing. Ex-Im in particular has
demonstrated innovation and flexibility in supporting investments by
U.S. firms around the world, and this flexibility should be mirrored by
other U.S. agencies tasked with boosting U.S. competitiveness. The U.S.
Chamber encourages Congress to strengthen its support for these and
other business-promotion initiatives, and to support their Africa-
specific activities that assist U.S. companies doing business in
Africa.
Economic Statecraft and the International Affairs Budget: Today,
overseas markets represent 95 percent of the world's consumers and 80
percent of its purchasing power. Trade already supports one in three
manufacturing jobs, and one in three acres on American farms is planted
for hungry consumers overseas. The businesses capitalizing on export
markets aren't just the multinationals: More than 280,000 small and
medium-sized businesses export, accounting for nearly a third of all
merchandise exports. The International Affairs budget and these
agencies play a vital enabling role for U.S. companies to tap foreign
markets and create jobs and prosperity at home.
Although it represents about 1 percent of the total federal budget,
the International Affairs budget is critical to creating jobs, saving
lives, protecting U.S. diplomats and embassies abroad, and fighting
terrorism and the spread of weapons of mass destruction. U.S. foreign
assistance programs provide technical advice and build stronger
political, legal, and economic policy regimes in developing countries
that help these nations to become reliable trading partners. At a time
when export opportunities represent a potential lifeline to the U.S.
economy and a motor of domestic job creation, these international
programs are more important than ever.
Deployment of Foreign Commercial Service: While we applaud this
renewed attention by Congress to address the competitive challenges
facing U.S. firms in Africa, we are concerned by the erosion of one of
the most useful sources of commercial intelligence available for U.S.
investors. For years, the U.S. Foreign Commercial Service (FCS) offices
in U.S. embassies across the continent have provided valuable advice
and assistance for American companies on the ground in Africa. However,
just as many in the U.S. business community are beginning to focus on
Africa in earnest, we are concerned that budgetary tradeoffs are
forcing the FCS to shrink its footprint in Africa.
The FCS has not only been critical to the successful introduction
of large U.S. firms in markets across Africa, it has also been an
invaluable resource for the small and medium-sized U.S. businesses that
have less experience in complex emerging markets. The FCS presence has
a demonstrated impact on U.S. exports to the region and associated jobs
in the United States. U.S. competitiveness will be undermined and deals
potentially lost to foreign competitors if the FCS is not meaningfully
sustained, if not boosted, over the next decade. The FCS needs to look
beyond the markets of today and realize that pulling staff from Africa
only helps our competition.
Trade Policy: The U.S. Chamber also encourages the U.S Government
to continue supporting the establishment of trade and investment
agreements with African countries as well as its Regional Economic
Communities (RECs). As you may recall, the 2011 ratification of the
U.S.-Rwanda Bilateral Investment Treaty represents the first such
treaty signed with an African country in over a decade. These
agreements send a strong signal of confidence to the U.S. business
community and to our potential business partners in African countries.
However, due to the small size of individual economies and the
regional integration efforts underway, the U.S. Chamber urges Congress
to consider widening the U.S. Government's approach to encompass entire
regional groupings, rather than individual countries. The reduction of
nontariff barriers to trade and the rationalization of unworkable
customs regimes are central to making African nations attractive U.S.
business partners and to spurring export-driven job creation for both
the United States and our African partners.
The United States should begin working to outline what trade
accords could encompass with the more integrated RECs, such as the
Common Market of East and Southern Africa (COMESA) and the Economic
Community of West African States (ECOWAS). While the technical issues
around such an agreement may seem daunting at first glance, we urge
Congress to begin these investigations now so that the United States is
not eclipsed by competitors from Europe and Asia that are making
dramatic inroads in African markets.
Just to highlight what is at stake, the EU, for example, has an
aggressive strategy to enact new trade accords with African nations.
These Economic Partnership Agreements (EPAs) give exports from the EU a
distinct advantage over goods produced in the United States; the
preferential treatment they receive all but ensures that U.S. firms
will be at a disadvantage for the foreseeable future. We need a trade
agenda now that will level the playing field for U.S. companies.
Finally, the U.S. Chamber urges Congress to extend the African
Growth and Opportunity Act (AGOA) and its associated provisions beyond
its current expiration in 2015. AGOA is not only good for the economies
of sub-Saharan Africa, but it also offers tangible economic benefits
for U.S. companies here at home. More importantly, AGOA is the first
and only economic policy platform that exists between the United States
and sub-Saharan Africa, and its looming expiration strikes a blow to
business certainty thereby threatening to undermine the significant
gains that African economies have made under this program.
As many in Congress are already aware, AGOA's 3rd Country Fabric
provision is expiring in September, directly threatening hundreds of
thousands of jobs across the continent--impacting not only Africa-owned
businesses and jobs but also the good standing of the United States as
a reliable partner in Africa's development. The U.S. Chamber of
Commerce and others in the U.S. business community have already taken
up this issue with Congress, and we are encouraged by the bipartisan
cooperation that we have seen in the past 2 weeks in the House and
Senate in advancing a renewal process. The Chamber urges Congress to
grant final approval to this legislation as quickly as possible.
In the medium to long term, U.S. and African businesses alike need
more certainty around AGOA's broader renewal, and we encourage Congress
to begin work now to extend AGOA beyond its scheduled expiration in
2015. In the past decade, AGOA's multiple renewals have been limited to
modest increments of time, which has limited the scope of its success.
The U.S. Chamber urges Congress to extend AGOA for a meaningful period
of time beyond 2015 to allow companies adequate time to invest and
build on these trading relationships.
CONCLUSION
Mr. Chairman, the decade ahead will see the emergence of Africa's
economic potential. U.S. businesses have been rapidly expanding their
trade and investment in Africa--but so, too, have competitors from Asia
and Europe. This moment of Africa's emergence is the time when critical
trade and investment relationships will take root. Companies engaged in
Africa today will grow as Africa grows. Now is the time for Congress to
recalibrate our policies to ensure that U.S. companies have the support
to take advantage of the opportunities Africa represents.
I thank this committee for the opportunity to testify today, and I
look forward to working with the Members to ensure a robust discussion
on U.S.-Africa policy as Congress examines trade preferences, foreign
assistance, and other U.S.-Africa issues. The U.S. Chamber also looks
forward to working with our partners in Africa to share ideas and work
to promote greater U.S.-Africa trade and investment.
Senator Coons. Thank you very much, Mr. Eisner, for that
insightful testimony for a number of actionable points there.
Thank you, Dr. Kimenyi, for your testimony. Thank you, Mr.
Hayes, for yours as well.
Senator Isakson regrets he has to go for an interview on
Syria that had been previously scheduled. We had a more robust
engagement on the first panel. I apologize that the schedule of
the Senate interrupted our ongoing conversation and the
opportunity for the second.
A question that Senator Isakson had hoped to ask is also
one which I share, which I will simply ask to the entire panel.
A significant portion of United States direct investment in
commercial activity in Africa is in the extractive sectors, is
in oil and gas. Historically that is where we have had our
greatest participation. As you pointed out, Mr. Hayes, there
are many other sectors that we could be active in. I think all
of you referenced the wide range of things from training to
agriculture, to tech transfer, to infrastructure.
But let us turn to extractive industries, if we could,
first. How do we work with African nations to ensure
transparency in how they are conducting their licensure, their
arrangements, their leases so that we are on a level playing
field with our competitors from countries like China and
others? And how do we work with African countries to make sure
that the resources that are newly available to some become a
blessing and not a curse, that they pursue more of the path of
Norway than Nigeria, just to pick two examples? I would welcome
any advice or input on that.
And you may have heard. I asked of the previous panel--the
United States has the sort of gold standard for transparency in
the FCPA. What progress do you see? What difference would it
make if African countries were to adopt their own transparency
standards that all comers, all applicants for tenders or for
the opportunity to operate in that country had to comply with
rather than the United States being the lead, if we had a level
playing field? If you would, Mr. Hayes, Dr. Kimenyi, Mr.
Eisner, in that order. I just would welcome your thoughts on
it.
Mr. Hayes. I think if there were a uniform standard for
Africa, it would help us a lot, very frankly. Our own standards
are enforced with our own companies, but obviously not enforced
with other countries. There are certain OECD standards as well.
I think, yes, the gold standard is our own, and I think we
follow it pretty well. But I think if the Africans felt
themselves policing it and it was uniform and agreed upon, I
think there is probably more of a likelihood of an even playing
field.
Right now the United States still has and advantage in the
extractive industries because we are a leader in deepwater
technology that others do not have, but the Chinese are coming
up on that very soon. So the technologies will probably be even
within 5 years is what I am told by our oil companies if not
sooner.
But where it is going to have to be an even playing field
is at the governance level, and I think that is probably--if in
fact there is an agreement. We are concerned about the way that
Sudan, South Sudan particularly, is developing, which we have
been told by the South Sudanese we want to use an African model
not the Norwegian model. So that is of concern. But if the AU
and others could find a uniform standard that we would be
comfortable with--we as a government--I think it would work
very well.
Senator Coons. Dr. Kimenyi, just to add to the question.
Botswana is an outstanding example of a nation that used its
natural resources in a balanced way for the benefit of its
people. What are the prospects of more nations adopting a
similar approach?
Dr. Kimenyi. Thank you very much, Mr. Chairman.
I think this is one of the concerns that we have,
particularly on China's investments in Africa. China has signed
a lot of contracts that are fairly opaque dealing with even the
last regimes and their citizens do not even know what is there.
So we are very concerned and we know that this is what leads to
the oil class in what we call the natural resource class in
most cases.
But we have examples now and we have now new countries
coming in with these type of resources. We have Uganda, Ghana,
Kenya discovered oil. And one of the things that we think is
very important is really improving governance so that the
citizens know what is going on.
In fact, one of the initiatives that we have at the
Brookings Institution is on the issue of natural resource
management, and we are actually planning a joint conference in
East Africa for the new oil economies because we want them to
start from the beginning. What do you have to do from the
signing of the contracts, licensing, and so on? And we have
seen differences, for example, between Uganda and Ghana, Ghana
going a very transparent way and Uganda not.
Of course, the extractive industries transparency
initiative is important. Reporting what you pay is important,
and I think when we have better governance, I think we will be
able to deal with these issues. But we cannot assume them away,
and they are very important for these particular countries.
Senator Coons. Mr. Eisner, transparency.
Mr. Eisner. Sure. I just want to echo the two comments on
my left. I think they were spot-on. The United States does have
a bit of a tool here in the MCC that can help to funnel some of
that transparency into the process. In fact, the chairman of
CCA right now is a large user of MCC and we applaud what he has
been doing in Zambia, Tanzania, and elsewhere. So I think there
are models that the United States can apply. I think we are
going to have to, at some point, address how USAID delivers
funds across the continent. Understanding to incorporate a
consistent theme across all U.S. lending agencies to employ
those tactics, that MCC has set out, I think would be something
that this committee should think about. I do not have the
answer, but anytime, to the points that were made earlier, that
you can have a coordinated effort across all agencies and have
standard language, then you can push that on all your vendors,
and I think that is an opportunity.
Senator Coons. Mr. Eisner, if I might start in the other
direction so as not to always conclude with you. You spoke
about regional integration and the possibility of FTA's or
BIT's with regional entities such as the East African
Community. One of the major barriers successfully to doing
business in Africa tends to be trade, infrastructure, tariffs,
border issues. In West Africa, I was particularly struck at the
progress that the Foreign Commercial Service office in West
Africa was making in that direction, thus particularly
concerned and upset by the decision to withdraw the Foreign
Commercial Service from Accra.
What do you see as the major opportunities and barriers to
our engaging effectively with SADAC, with ECOWAS, with EAC, and
where do you think we can have the greatest impact working
whether on things like BIT's and FTA's or encouraging regional
integration?
Mr. Eisner. Sir, a great question.
Senator Coons. I do not ask simple questions. [Laughter.]
Mr. Eisner. No, no, no. It is all right. I do not have a
really good answer, so it should go well. [Laughter.]
You know, I think the issue of customs is a huge issue for
the business community. The transport of goods and services
across borders is one that is addressed. In fact, I was talking
to Steve Lande of Manchester Trade, just before this panel,
about that exact topic and the need of working with the
European Union and others to make sure that when they come in
with their economic partnership agreements, which are now
getting pushed back on a bit by the African governments, that
they come up with a design and model that allows customs and
standard regulations across all borders.
So I think one of the concerns of the business community
when it comes to Chinese investment, which is not all bad all
the time because they can do things we cannot, but it is when
it comes to standardization. So if you have rail being built by
a Chinese firm that is leading from Mozambique and it hits the
borders of Botswana or elsewhere, is the gauge going to be the
same as Botswana is using? And if they are building all this
infrastructure, is it in a congruent and harmonious pace?
So I think from a standpoint of what the U.S. Government
can do is start those conversations now with the Chinese and
other infrastructure build-out projects to make sure so that 10
years down the road that they are all on the same page. This
comes to other regulatory when it comes to radio frequencies
and where Brazil is playing in because they play into the radio
world and other manufacturing. So I think those types of things
will help that harmonious approach and a broadening of the
regional economic communities. For us in the business
community, I mean, it is critical because we can expand our
markets that much greater if we can actually get out goods and
services across borders. So for us, it is a No. 1 priority.
Senator Coons. Thank you.
Dr. Kimenyi, any comments about regional integration and
our negotiating new agreements?
Dr. Kimenyi. Thank you, Mr. Chairman.
I believe that the pace of regional integration now--this
project, the regional integration project, is moving fairly
fast and in the right direction. But the biggest barrier I see
for effective regional integration is the infrastructure.
Although countries are removing the barriers, both tariff and
nontariff barriers, they still have to deal with the
infrastructure. They have to transport goods between customs
and borders and so on.
And I see this as an area where a United States approach to
dealing with these countries may be focusing more on a regional
approach because think about, for example, supporting good
infrastructure projects in Uganda and not in Kenya or Tanzania.
But you are going to have to transport the goods through
Mombasa, the Port of Mombasa, to Uganda. So if you really want
to really get sort of a more effective approach, I think the
regional integration approach is the best way, looking at the
totality of the area like in the East African Community. And in
that sense, I think the United States could have quite a bit of
leverage in terms of--even private funds in terms of investing
in infrastructure and, of course, the electronic systems for
border and customs.
Senator Coons. Thank you.
Mr. Hayes, any further comments on regional integration and
FTA's and BIT's?
Mr. Hayes. No. I think it is vital. I also think one of the
impediments is not simply infrastructure. I think that
leadership has to want regional integration. Leaders of
countries have to understand that regionalization is something
that helps them and which they do not lose power. I think there
is a very human element in that that slows down
regionalization.
I also have a hard time faulting the U.S. strategy of
working with the East African Community. It is manageable.
There is a lot of very interesting, positive things happening
in the community, Tanzania to Kenya. And I think it is probably
realistic to concentrate on one area and move from that. But
politically also it is hard to be seen for getting other areas.
I am certainly in support of the AU's goal of--I think it
is in 6 years--having a common market for Africa. I do not
think it is realistic, but I think that it is commendable that
they are moving that way and it may bring along leadership. But
I think leadership is a major issue too.
Senator Coons. Mr. Eisner, if I might. I am interested in
hearing thoughts from all three of you about how we might
strengthen AGOA. Senator Isakson and I will talk, I suspect,
yet again this evening as we did last night about a strategy
for getting the third-party fabric agreement reauthorized. But
I would like to look beyond that. There is a number of
countries. Uganda is one example that really has not taken
advantage of AGOA. It has been limited to a few sectors and a
few countries that have really participated.
As we move toward reauthorization, how would you strengthen
it? How would you broaden it? Are there other sectors, are
there other provisions? Or would you encourage us to look
completely outside of AGOA at other strategies for promoting
and strengthening our trade relationships such as those
suggested by Senators Durbin and Isakson?
Mr. Eisner. Well, I think Senator Isakson's measure on the
development reform is a good step in looking at a new policy
toward Africa. This whole of government, 10 agencies doing 10
different things at once--I know from the outside looking in,
the private sector sometimes has trouble figuring out how to
navigate those waters. I work closely, as do Steve and others,
with State and kind of the interagency process, and I will tell
you, quite honestly, at times it is baffling how anything gets
done. So bringing some continuity and some authority amongst
all agencies is a good idea. I think there are some basic
challenges there of just getting that basic point across that
are key.
As far as AGOA goes, I think a bird in the hand is better
than--what is it--two in the bush is the old statement. I think
we cannot let it go, but I think there are lots of things and
analytical work we need to do over the next 3 years when it
comes due in 2015. Many people have talked about AGOA 2.0, not
letting it linger like we have with third-country fabric.
Starting tomorrow addressing those issues is probably the key
to that. Making sure we do not graduate out countries. Like
South Africa has been discussed once or twice. I think that is
a really bad idea because they pull on the rest of the
continent downward and help stabilize the rest of the
community. If we are looking at a national interest, getting
them out of the system I think is a bad idea personally.
So I think some of those things we need to address in a
broadened thinking process. And I do not have all the answers
today, but having some continuity amongst all agencies would be
my first request.
Senator Coons. Thank you.
Dr. Kimenyi.
Dr. Kimenyi. Yes. As I mentioned earlier, I think the
Africa Growth and Opportunity Act has been very important to
Africans, particularly when we think about job creation. It has
helped create a lot of jobs. And these jobs also go to women,
and we know that when women have jobs, that their entire
quality of life for households improves. So AGOA, in that
sense, is very important. And it seems like the continuation of
it is quite important. And as we always say, it is better to
trade than to get aid from any country. So this to Africa is
very important.
There are several things that one could think of, but we
also need to note that it is true that the full potential of
AGOA has not been exploited. And this has to do with Africa's
competitiveness. The best way to make Africa do more business
with the United States may also have to do looking at why is it
that a lot of these countries are not able to produce
competitively and it has to do, again, with those issues, both
hard and soft infrastructure, that need to be helped. And the
United States can still play a role in that.
But other areas need sort of the trade facilitation. I
think that is quite important. And the issues of coordination,
as we talked here before, are important.
And, of course, the third-country fabric provision remains
quite central to this. So that is an important one.
So I think there are many things, and we have been thinking
about this, about pushing--reforming AGOA, the weaknesses that
are there.
But another component, Chairman, I may add is that AGOA
also had a component of increased investments by American firms
in Africa so that they do business there. That has not been as
productive. I think that is an area one could think about maybe
joint ventures and again tax incentives for businesses to
invest in Africa.
Senator Coons. Thank you.
Mr. Hayes, you will have the last word. There is a 6
o'clock train and I have got a ticket to go home and see my
family.
Mr. Hayes. I understand.
Senator Coons. I would be interested in this conversation
almost indefinitely. I will, before I invite to make you some
conclusory remarks, invite all three of you, if you wish, to
submit written comments at any point. AGOA reauthorization, how
to strengthen and expand AGOA I suspect will be the topic of a
future hearing here, but I take Mr. Eisner's point very
seriously. We should be getting going on this now, not waiting
until 6 months before it expires.
Mr. Hayes.
Mr. Hayes. Well, on one hand, I think it is almost a sad
commentary that AGOA has been the only major piece of
legislation on Africa in 12 years. I think it is an important
piece of legislation. I think in terms of our subject of how
you get more United States investment in Africa, AGOA is not
necessarily the answer. I think it is a very important tool. I
think it is one of several tools that need to happen. I
certainly believe it needs to be extended. And a lot of my
recommendations too, specifically probably not surprisingly,
parallel or almost agree totally with Scott's spoken
statements, but they are in the written testimony.
I am concerned that we have not linked the development
aspect of AGOA. And AGOA is also a political incentive tool as
well, which I think has been very effective in that regard,
probably is most effective as well as having jobs. But we have
not linked it to the American economy as much, and I think that
we have got to find other means. It is why I support the Durbin
bill, support what I understand is coming from Senator Isakson.
But I think we really need a far deeper dialogue on Africa and
need to show far more support politically and economically.
Senator Coons. Thank you, Mr. Hayes.
Dr. Kimenyi, asante sana for your testimony today. Mr.
Eisner, thank you for your testimony. I am grateful to the
panel both for your appreciation and understanding of the
interruption of our flow here but also for your very strong
testimony on this important topic. It is something I intend to
be active in and remain engaged in. And I know Senator Isakson
has also not just spoken about but demonstrated a real concern
for and enthusiasm about this.
I am pleased to hear, Mr. Eisner, about your participation
in the upcoming trade mission led by Secretary Clinton. Several
of you have spoken about United States-Africa trade centers or
initiatives, and we would welcome further input from you in
writing.
I will also keep the record open until the close of
business Friday, July 27, for any member of the committee who
was not able to be here today but wants to submit questions.
Otherwise, this hearing is adjourned.
[Whereupon, at 5:37 p.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Charts Submitted as an Attachment to Elizabeth L. Littlefield's
Prepared Statement
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Supporting Charts and Graphs Submitted as an Appendix to Mwangi
Kimenyi's Prepared Statement
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______
Responses of Under Secretary Francisco Sanchez to Questions Submitted
by Senator James M. Inhofe
Question. What benefits would a Free Trade Agreement with the East
African Community bring to the U.S. business community?
Answer. The African Growth and Opportunity Act (AGOA) declares that
Free Trade Agreements (FTAs) should be negotiated, where feasible, with
interested countries in sub-Saharan Africa. However, the administration
does not believe that the East African Community (EAC) is ready or
willing at this time to conclude a high-standard FTA with the United
States. The U.S.-EAC trade and investment partnership, which we are
pursuing with the EAC, employs a building blocks approach to concluding
a more comprehensive trade agreement over time. The initial items we
are exploring with the EAC include a regional investment treaty, a
trade facilitation agreement, a commercial dialogue, and continued
trade capacity-building assistance. Additionally, we are also exploring
a trade facilitation program that could be advanced in the short term
and ease the flow of goods within the EAC and reduce the cost of doing
business for U.S. and EAC firms in East Africa.
The overall U.S.-EAC trade and investment partnership will create
new opportunities for U.S. businesses, by lowering barriers to trade
and supporting regional economic integration in one of the most
promising regions in sub-Saharan Africa. Furthermore, a U.S.-EAC
Commercial Dialogue could help resolve some of the trade barriers U.S.
companies face in the region--thus enhancing their ability to both
expand their businesses and operate at optimum capacity in Africa.
Question. Which regions of sub-Saharan Africa would U.S. businesses
most benefit from having a regional Free Trade Agreement in place?
Answer. To facilitate FTAs in sub-Saharan Africa the U.S.
Government would have to consider how best to transition from
unilateral trade preferences such as the African Growth and Opportunity
Act (AGOA) to broader Free Trade Agreement (FTA) commitments. FTAs are
designed to expand market access, strengthen the links between trade
and economic development strategies, encourage greater foreign
investment, and promote regional economic integration and growth.
U.S. exports to sub-Saharan Africa continue to face a variety of
significant tariff and nontariff barriers. Consistent with the National
Export Initiative (NEI) and the administration's renewed commitment to
expand markets for U.S. goods and services, there is a need to
intensify efforts to open further African markets to U.S. exports. FTAs
have previously been suggested as an approach to provide greater market
access for the U.S. private sector. To date, our trade relationship
with SSA has been built largely upon unilateral trade preferences. It
is our hope that our trade relations with SSA evolve into deeper,
stronger, and more reciprocal partnerships. A regional FTA may
facilitate opportunities to expand and diversify trade between the
United States and sub-Saharan Africa.
The United States Government's previous effort to negotiate a free
trade agreement with the Southern African Customs Union (SACU) was
suspended before completion. There are many lessons available from that
experience relevant to the process of considering an FTA in sub-Saharan
Africa with SACU or any other Regional Economic Community. The United
States had $18.2 billion in total (two-ways) goods trade with SACU
countries during 2010. Goods exports totaled $7.5 billion; imports
totaled $10.7 billion. The U.S. goods trade deficit with SACU countries
was $3.2 billion in 2011.
The East African Community (EAC) continues to demonstrate its value
to the U.S. private sector. The EAC Initiative is taking a building
block approach toward improving the business climate. Once this
Initiative has time to develop, the United States will examine
beginning FTA negotiations. The United States had $1.5 billion in total
(two-way) goods trade with the EAC during 2011. Exports totaled $969
million; imports totaled $526 billion. The U.S. goods trade surplus
with the EAC was $443 million in 2011.
Question. What specific barriers to trade should be addressed in
the administration's trade negotiations with countries or groups of
countries in sub-Saharan Africa to increase and improve trade between
them and the United States?
Answer. Despite the fact that U.S. exports to sub-Saharan Africa
have increased, significant barriers remain to furthering trade between
sub-Saharan African countries and the United States. Commerce's
International Trade Administration (ITA) and Commercial Law Development
Program (CLDP) have worked with American companies, sub-Saharan Africa
governments and African companies to eliminate these barriers. For
example, ITA, CLDP and U.S. Patent and Trademark Office have conducted
a number of training programs in west, East and southern Africa on the
importance of intellectual property protection, not just for the
benefit of American companies, but also for the health and safety of
African consumers.
Significant barriers to trade with sub-Saharan Africa that the U.S.
Government will continue to address and on which potential trade
negotiations should focus include:
Increasing transparency in government procurement, rule
making, standards, customs procedures, and judicial systems;
Protecting and enforcing intellectual property rights;
Promoting the rule of law and respect for sanctity of
contracts;
Ensuring that property of Americans is not taken without due
process of law and without payment of just compensation; and
Reducing and/or removing tariffs, customs duties and
charges.
It is important to note that the African Growth and Opportunity Act
(AGOA) legislation lays out a series of eligibility requirements for
African countries. Among other AGOA eligibility requirements, a country
must demonstrate that it has established, or is making continual
progress toward establishing the elimination of barriers to U.S. trade
and investment. Specific areas addressed through AGOA are the provision
of national treatment and measures to create an environment conducive
to domestic and foreign investment; the protection of intellectual
property; and the resolution of bilateral trade and investment
disputes.
We are in a position to be proactive in building and improving our
relationship with African nations and Africa's Regional Economic
Communities. In particular, we are dedicated to increasing trade and
investment between the United States and the EAC. The EAC is a highly
developed and integrated Regional Economic Communities in Africa and
the proposed U.S.-EAC Commercial Dialogue presents an opportunity for
the United States to develop a closer economic relationship with the
EAC. The proposed Commercial Dialogue will provide us with a vehicle to
address concerns and to share best practices with the goal of lowering
barriers to trade and improving the business climate.
______
Responses of Elizabeth Littlefield to Questions Submitted
by Senator James M. Inhofe
Question. How does U.S. private sector investment in African
commerce compare to other similarly developed regions in the world?
Does this differ from region to region in Africa?
While the accumulated pool of U.S. private investment in sub-
Saharan Africa is well below that of developed country destinations
like Europe and Japan--reflecting decades of previous American FDI
flows--that picture has been changing markedly in recent years.
Chart 1: Stock of U.S. FDI Abroad by Destination
[GRAPHIC(S)] [NOT AVAILABLE IN TIFF FORMAT]
Source: U.S. Trade and Investment Relations with sub-Saharan Africa
and the African Growth & Opportunity Act (Congressional Research
Service, 2012).
According to IMF data, total world FDI to sub-Saharan Africa was
about $39 billion in 2010, and is projected to reach $41 billion in
2012. Leading sub-Saharan Africa country destinations for worldwide
direct investment in 2010 included Angola ($12.6 billion), Nigeria
($6.8 billion), and South Africa ($5.9 billion).\1\
---------------------------------------------------------------------------
\1\ International Monetary Fund data from Economist Intelligence
Unit (EIU) Market Indicators and Forecasts Database.
---------------------------------------------------------------------------
U.S. foreign direct investment (FDI) flows in the region in 2010
were about $3.2 billion, with Mauritius ($2.0 billion), South Africa
($715 million), Gabon ($267 million), Nigeria ($193 million), and
Liberia ($80 million) as the top destinations.\2\
---------------------------------------------------------------------------
\2\ Source: U.S. Trade and Investment Relations with sub-Saharan
Africa and the African Growth & Opportunity Act (Congressional Research
Service, 2012).
---------------------------------------------------------------------------
Much of sub-Saharan Africa today is at the beginning of the
industrialization stage. It is roughly comparable to Eastern Europe 20
years ago or India in 1994. But a decade of political stability and
macroeconomic reforms has been positive for Africa. Growth has been
rising by 5-6 percent per year, on the back of these reforms, a fall in
political risk, debt writeoff and the well-documented commodity prices
story.\3\
---------------------------------------------------------------------------
\3\ ``Into Africa: Emerging Opportunities for Business.'' Economist
Intelligence Unit, 2012.
Question. How developed are capital markets in Africa, and to what
extent does this either help or hinder U.S. private sector involvement
---------------------------------------------------------------------------
in region?
Answer. In Africa, the financial sector continues to be at the
forefront of economic growth, innovation, and integration on the
continent. Although capital markets in Africa are not nearly as well
developed as those in highly industrialized countries like the United
States, Europe, and Japan, the gap is narrowing markedly. Despite some
recent slowing, broader economic growth in sub-Saharan Africa is still
projected to be much stronger than in highly developed countries over
the coming decade. And despite level or declining inflation across most
of the region, projected interest rates remain higher in sub-Saharan
Africa than in the United States, Japan, or Europe, attracting capital.
Banks in the region are becoming more fully capitalized and can rely
less on rapidly entering and exiting ``hot'' capital than in the past.
As governments in Africa become more stable and their foreign exchange
reserves rise, fixed exchange rates are gradually disappearing--a
further incentive for capial market growth.
Meanwhile the rapid spread of microfinance institutions in the
region, along with technological advances like mobile banking, are
transforming African savings practices. Funds are moving funds away
from relatively illiquid informal lending networks to the kind of
financially regulated, pooled-capital institutions that build public
trust and underpin broader capital markets.
Still, capital markets remain much smaller in Africa than in the
developed countries and, for better or worse, less connected to global
capital flows.
But that is changing. For one thing, stock markets in the region
are developing steadily. As World Bank Vice President for Africa
Obiageli Ezekwesili commented recently:
A first fact is that until the recent crisis, African stock
markets had been experiencing resurgence and displaying an
energy that had not been felt for years. A second fact is that
with the exception of South Africa, most African stock markets
doubled their market capitalization between 1992 and 2002, from
US$113.4 billion to US$244.7 billion.
One overriding fact is that more capital is flowing to Africa
because the continent has become a friendlier and more
profitable market. Even more so, foreign investors have learned
during the previous crisis that Africa, indeed, stayed stable.
Meaning that they are now not rushing to withdraw from Africa
in a flight to quality. As many as 36 of the 46 African
countries surveyed by our annual ``Doing Business Report''
implemented serious reforms over the last 5 years, including
those countries whose overall ranking in the report may not
have improved.\4\
---------------------------------------------------------------------------
\4\ Speech, October 31, 2011.
Future growth in these sub-Saharan stock markets, says an
International Monetary Fund Working Paper, may depend on improving the
costs of issuing and listing securities, as well as scaling up personal
savings, which would help draw individual investors into the stock
markets. At present, however, listing costs on African stock markets
tend to overrepresent government entities and former state-owned
enterprises in these markets, the IMF paper notes, while the low rate
of individual investor participation leads to dominance by commercial
banks and pension funds.\5\
---------------------------------------------------------------------------
\5\ Ybara, Masafumi. ``Capital Market Integration: Progress Ahead
of the East African Community Monetary Union.'' IMF Working Paper.
January, 2012. p. 6.
---------------------------------------------------------------------------
The Economist magazine summed it up: ``When the dust settles, these
emerging markets will still be growing faster than they did before
2003. But getting back up to the speed of the past decade will mean
maintaining the macroeconomic discipline and returning to the
microeconomic reforms that made it possible in the first place.'' \6\
---------------------------------------------------------------------------
\6\ Editorial, July 21, 2012.
Question. What can the United States do to help improve the
development of private capital markets in sub-Saharan Africa? Do any
---------------------------------------------------------------------------
federal agencies already have authorization to do this?
Answer. There are a number of steps that the United States can
undertake to help strengthen these capital markets.
OPIC has both the authority to help strengthen African capital
markets and the relevant experience.
At one level, OPIC's history of supporting investments in sub-
Saharan Africa--committing over $7.6 billion to support over 460
private-sector initiatives in the region since 1974--helps provide both
the foreign direct investment and the rising asset values that are
foundation stones of capital market growth.
But specific OPIC projects can even more directly bolster capital
market growth.
For instance, OPIC has extensively backed loans and loan guaranties
to banks that agree to onlend to small businesses, and to microfinance
institutions that increasingly promote savings and provide assistance
in financial management to the poor. More than 2 million sub-Saharan
Africans now participate in microfinance institutions that are
ultimately financed by OPIC.
Another key method for supporting capital market growth is OPIC-
supported private equity Investment Funds in sub-Saharan Africa. At
present, these
OPIC-backed private equity funds are in the process of investing $3.9
billion in sub-Saharan Africa. The investments span many sectors, from
agriculture to infrastructure to health care to telecommunications, but
each of them has the economic effect of strengthening the region's
capital markets.
This effect is perhaps most vividly seen in the financial services
sector.
Since private equity capital is often lacking in developing
countries, the USG (through OPIC) provides support for the creation of
privately owned and managed investment funds. OPIC is one of the
largest active organizations in private equity funds in developing
nations. Private equity is one of the fastest ways to deploy needed
capital in emerging economies as well as broaden the impact of every
development dollar. For example, an OPIC-financed private equity fund
was a key investor in Equity Bank of Kenya, a once-small savings
institution that has utilized microfinance practices and modern banking
technology to grow, in 20 years, from 27 employees and 27,000 customers
at 6 branches in Kenya, to 8,000 employees and 8 million customers at
66 branches in four East African countries. From a loss of $58,000 in
1993, the bank rose to an expected profit of $175 million in 2012.
During the past decade, it has shown a compound annual growth rate of
78 percent and rewarded investors (the bank has been listed on the
Nairobi Stock Exchange since 2006) with 900 percent appreciation,
turning many of its employee-investors into millionaires. Bank CEO
James Mwangi, once a fatherless boy selling charcoal, was named Ernst &
Young World Entrepreneur of the Year in 2012.\7\
---------------------------------------------------------------------------
\7\ Anver Versi,``James Mwangi, A Life Stranger Than Fiction,''
African Business, August 2012, p. 46.
---------------------------------------------------------------------------
A recent survey of private equity investment opportunities in the
region noted:
African markets, boasting 10 of the top 20 fastest-growing
economies in the world, and 5 of the world's top 10 reformers
in 2012, according to the World Bank's Doing Business ratings,
hold exceptional promise for private equity investors. However,
the lack of transparency and underdeveloped legal systems and
institutional infrastructure in many African markets make
assessing potential investments difficult.\8\
---------------------------------------------------------------------------
\8\ ``Africa: Maximizing Investment Opportunities While Managing
Risk,'' EMPEA Legal and Regulatory Bulletin, Emerging Markets Private
Equity Association, 2012, p. 1.
The report goes on to identify obstacles like the overlap between
the public and private sector, traditional frameworks for assessing
risk that deem Africa to be high risk, and the challenges of conducting
due diligence.
The report also suggests a number of reforms and remedies that
might help remove such obstacles.
Still, it concludes, in Africa ``private equity is more often about
backing entrepreneurial founders and managers and not [about] buying
mature businesses, making diligence into the people involved all the
more crucial.'' \9\
---------------------------------------------------------------------------
\9\ Ibid., p. 2
---------------------------------------------------------------------------
Other U.S. Government agencies and programs that can assist African
capital markets include the Development Credit Authority and Private
Group for Africa at USAID, and financial institution capacity-building
initiatives at the Millennium Challenge Corporation.
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